Asia's No.2 Cigarette Maker Drops After Closing India Plants

  • Shares of ITC, Godfrey Phillips, VST Industries decline
  • Rule requiring 85% pictorial warning on packs roiling industry

ITC Ltd., Asia’s second-largest cigarette maker by market value, declined from a four-month high after shutting Indian factories in protest against a new government rule mandating bigger health warnings on its packs.

Shares in the company part-owned by British American Tobacco Plc dropped 1.6 percent, the most in about two weeks, in Mumbai on Monday. Other Indian cigarette makers, too, are closing plants, according to trade body the Tobacco Institute of India. Godfrey Phillips India Ltd. slid 3.8 percent and VST Industries Ltd. lost 1.7 percent.

ITC said it was compelled to close the plants as of Friday, when the new rules came into effect, until there is clarity on the health warning guidelines. The Kolkata-based company flagged uncertainty stemming from legal challenges and potential modifications suggested by a parliamentary committee. The tobacco institute estimates daily industry-wide losses of 3.5 billion rupees ($53 million) from the closures.

India’s tobacco industry and the government are tussling over the regulations, which require that pictorial warnings cover 85 percent of a pack’s surface, up from 40 percent of just the front panel. At the same time, a prolonged industry closure could have some impact on government revenues, since taxes constitute as much as 60 percent of the selling price of cigarettes in India.

Godfrey Phillips said in an exchange filing that it has temporarily suspended cigarette production for the local market pending implementation of the proposed graphical health warning. One plant in Navi Mumbai in Maharashtra state is continuing to make cigarettes for export, the company said.

Multiple telephone calls to VST Industries and Golden Tobacco Ltd. seeking comment went unanswered. Golden Tobacco climbed 2 percent, bucking declines among its rivals.

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