Maharashtra bans sale of loose cigarettes

Maharashtra on Monday banned the sale of loose cigarettes in the state after a similar ban by Chandigarh, becoming the second state in the country to ban the sale of loose cigarettes.

The ban on sale of loose cigarettes, which will impact local vendors and thereby overall sales of cigarette manufacturers, will also affect government revenues.

The ban will impact branded cigarette sales in the entire industry and ITC, which has the largest market share, will be the worst hit. ITC shares fell over 4.5 per cent to Rs317.60 today, a day after Maharashtra banned the sale of loose cigarettes.

The ITC stock ended over 4 per cent down at Rs318.65, underperforming the broader Nifty and the Sensex, which closed 0.48 per cent down.

Sales in Maharashtra account for 9 per cent of ITC's cigarette sales and the ban could lead to a 1 per cent volume decline for the company, analysts said.

While the ban on the sale of loose cigarettes will have an immediate impact on sales, volumes may pick up as customers adjust to buying in packs, and analysts expect that sales could, in fact, go up.

The ban is also calculated as not to affect government's revenue as sales would pick up over time. For the cigarette manufacturer, there could also be alternative options to increase sales volume.

Also, while the government of Maharashtra has announced that the sale of lose cigarettes will be a punishable offence with imprisonment as well as a monetary penalty, it all depends on how the vendors are deterred by the ban.