The Gujarat and Delhi state governments have banned gutkha from 11 Sep’12, following a notification from the Food Safety Standards Authority of India. The notification bans all food products with tobacco or nicotine. Other states that have done so in the past are Madhya Pradesh, Kerala, Bihar, Maharashtra, Rajasthan, Haryana, Jharkhand, Punjab and Chandigarh. However, there is no restriction on sale of loose tobacco or smoking tobacco products.
We believe that the above-mentioned states account for ~45% of the cigarette sector in India. Though loose tobacco and cigarettes are consumed by different types of people, we believe the news will be a positive for cigarette companies. We expect low-end brands such as Bristol, Flake and Scissors of ITC and Charminar of VST to benefit. Also, we estimate the new cigarette of 64mm to command higher volumes, finding favour with former gutkha consumers.
We believe incidences such as the ban on gutkha in some states would be a long-term positive for the cigarette sector as smokeless tobacco makes up ~50% of tobacco consumption in India. Bidis account for 35% and cigarettes, the rest of the consumption
