Photographer: Noah Seelam/AFP via Getty Images

World's Top Performing Tobacco Stock Extends Gain on Revamp Plan

  • Godfrey Phillips is top performer on global tobacco index
  • Philip Morris owns at least 25% of the Indian tobacco maker

Godfrey Phillips India Ltd., the Indian unit of Phillip Morris International Inc., said it plans to hire advisers for a potential revamp and reward its shareholders. The world’s best performing tobacco stock extended the rally.

The board of directors, at a meeting on Jan. 31, authorized the Mumbai-based company to engage the services of a merchant banker or advisers to undertake a study and provide guidance for “reorganizing its various businesses in order to explore the opportunities for value enhancement for its shareholders,” it said in an exchange filing.

Godfrey Phillips shares have surged 123 percent in the past year, making the stock the top performer on the 28-member Bloomberg Industries Global Tobacco Competitive Peers Index. That compares with a 13 percent slump at ITC Ltd. as higher tobacco taxes gradually erode demand for cigarettes. VST Industries Ltd. has declined 10 percent in the same period.

Public Health

Taxes constitute up to 60 percent of the selling price of cigarettes in India, making tobacco companies hugely sensitive to the levies. Local administrations have also been planning additional regulations, such as a ban on sales of loose cigarette sticks, which could adversely hurt the industry’s prospects.

Godfrey Phillips’ shares rose 7.6 percent in trading as of 10:04 a.m. in Mumbai after jumping as much as 12 percent earlier. The benchmark S&P BSE Sensex has dropped 15 percent in the past year.

India has among the highest incidence of tobacco-induced lung and mouth cancers, and the government has long resorted to raising taxes as a public health measure. The next round of tax increases is likely to happen when Prime Minister Narendra Modi presents his annual budget on Feb 29.

In December, a government panel headed by chief economic adviser Arvind Subramanian recommended a “sin, demerit rate” of 40 percent on luxury cars, aerated beverages and tobacco products, as part of the proposed national sales tax intended to unify a patchwork of local state taxes. Cigarette makers’ tax bill could rise by as much as 14 percent if this demerit rate is charged in addition to the central excise tax, Morgan Stanley said Dec 7.

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