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India To Open Cigarette Market (fwd)
Lexington Herald-Leader, 28 August 1998
Cigarette imports to expand in India
By Subramaniam Sharma
BLOOMBERG NEWS
NEW DELHI -- More companies will compete for the attention
of the few
Indians who smoke high-priced cigarettes, now that the
government is
allowing foreign companies into the market, analysts say.
The high-priced segment of the Indian cigarette industry is
expected to
witness fierce competition after the Indian government
Thursday said it will
allow 100 percent foreign equity in tobacco companies.
"The top end of the market will get cluttered as more
players enter India,"
resulting in a tougher fight for market shares, said Sapna
Malhotra, an
analyst at S.S. Kantilal Ishwarlal Securities Ltd. in Mumbai.
India's tobacco industry sells 110 billion cigarettes each
year worth $2
billion, analysts said.
The high-priced segment, where foreign companies are
expected to attack
first, accounts for 17 billion cigarettes a year, said
analysts.
The entry of foreign companies will also squeeze the market
for nearly 2
billion cigarettes smuggled into the country each year, as
smokers will be
able to get their favorite foreign brands from India-based
companies,
analysts said.
Some street vendors are concerned.
"I will no longer have the flexibility of pricing the
smuggled foreign
cigarettes," said Ramesh Kumar, who sells smuggled foreign
cigarettes
including brands such as Camel, Seven Stars and Benson &
Hedges from a
kiosk in central Delhi.
Kumar sells a pack of 20 cigarettes of Camel for 50 rupees
($1.20) to 70
rupees, in comparison to ITC's premium brand India Kings,
which sells for
55 rupees.
Analysts say that the potential for growth in the Indian
cigarette market is
huge as Indian smokers switch from local leaf smokes called
"bidis," to
cigarettes, and affluent smokers switch to costlier
cigarettes.
"People will shift to foreign brands as they become more
easily available,"
said Kumar.
All Contents © Copyright 1998 Lexington Herald-Leader. All
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Indian Express, 28 August 1998
Centre clears 100% FDI in cigarettes
NEW DELHI, Aug 27: The Centre on Thursday allowed 100 per cent foreign
direct investment in cigarette-manufacturing,
clearing the decks for the entry of multinational companies.
NEW DELHI, Aug 27: The Centre on Thursday allowed 100 per cent foreign
direct investment in cigarette-manufacturing,
clearing the decks for the entry of multinational companies.
The government has, however, stipulated that companies will have to obtain
licence from the government to set up
manufacturing units under the Industries (Development and Regulation) Act of
1951.
Industry secretary and chairman of Foreign Investment Promotion Board TR
Prasad told The Financial Express that the
proposal of Rothmans of Pall Mall, which has been hanging fire for almost a
year now, will be taken up by FIPB at its meeting
in the first week of September.
When asked to comment on BAT Industries' proposal to hike its stake in VST
Industries from 34 per cent to 51 per cent,
which was not cleared by the government, Prasad said: "Once the guidelines
have been formulated, any proposal which
adheres to the policy will be taken up by the government."
The government is likely to justify its decision to allow 100 per cent FDI
by citing falling tobacco prices in the country and the
need to attract foreign investment in the post-nuclear phase. Tobacco
farmers in Andhra Pradesh were reported to be
unhappy with sluggishness in tobacco prices, which was attributed to
presence of only three to four large cigarette companies
in the country.
Though the entry of Rothmans and other cigarette giants such as Phillip
Morris seems imminent after the government's bold
decision on Thursday, it is not clear whether FIPB will insist on getting a
board resolution from ITC before clearing Rothmans'
application. The board resolution was one of the reasons cited for keeping
Rothmans proposal pending since the company
holds a minority stake of less than 2 per cent in ITC.
Sources in industry ministry, however, said that since Rothmans has never
had any controlling interest or its nominee on the
board of ITC and has remained merely a minority shareholder for more than
four decades, FIPB may not insist on a board
resolution.
Rothmans proposes to make an initial investment of $150 million in its
wholly-owned manufacturing company in the country
on the condition that it would not repatriate dividend in the first seven
years of operation. The company's proposal stated that
it would disinvest 24 per cent stake to Indian partners/public after setting
up the project. However, the company may
withdraw this clause from its proposal since the government has now allowed
100 per cent foreign direct investment.
Sources close to BAT Industries, which holds over a 35 per cent stake in
ITC, said that the UK-based cigarette giant may
enter the country with a wholly-owned subsidiary. The company had, last
year, submitted a proposal for setting up a 100 per
cent subsidiary, which was subsequently withdrawn as the government did not
give its approval. BAT subsequently entered
into a licensing agreement with ITC to introduce two brands -- Benson &
Hedges and 555 -- in the country. The brands
were launched in the market recently.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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