Shares of Godfrey Phillips India surged approximately 6% on Monday, buoyed by ITC's June-quarter earnings results and encouraging brokerage commentary that lifted investor sentiment across the cigarette manufacturing sector.

Godfrey Phillips, one of India's largest listed cigarette makers and a long-time manufacturer of international brands including Marlboro under license from Philip Morris, often takes directional cues from ITC — the country's dominant cigarette company with an overwhelming share of the legal market. When ITC's results are read as a sector signal, smaller listed peers typically move in sympathy.

The rally in Godfrey Phillips stock came in the wake of larger rival ITC's Q1 results, which showed a 27% year-on-year decline in standalone profit to Rs 3,579 crore, while revenue grew 2.8%. Despite the profit drop, analysts interpreted the overall results as a sign of relative stability in the sector following months of pressure from tax-related disruptions.

The positive momentum extended to other cigarette makers as well. VST Industries and Golden Tobacco, both listed peers in India's tobacco sector, also drew investor attention amid the broader sectoral uplift.

According to analysts, the worst of the tax-led disruption that has weighed on the cigarette industry may now be behind it. The sector has faced headwinds from increased taxation, including adjustments to the GST compensation cess on tobacco products, which had squeezed margins and dampened demand. India's legal cigarette market accounts for only a fraction of total tobacco consumption in the country, with the remainder dominated by bidis and chewing tobacco — a structural reality that magnifies the impact of any tax change on the organised segment.

However, some market observers remain cautious. Key concerns cited include the pace of margin recovery, pricing power in a competitive environment, and the ongoing threat posed by the illicit cigarette trade, which continues to capture market share by operating outside the regulated tax framework.

The broader cigarette sector has seen both revenue and profit declines among major players including ITC, Godfrey Phillips, and VST Industries following the recent tax hikes, making the current quarter's results a closely watched indicator of whether the industry is turning a corner. For Godfrey Phillips, which also operates a growing confectionery and chewing products business, sustained recovery in the cigarette segment remains critical given that tobacco still accounts for the bulk of its revenue.

Source: Economic Times