Why Australia's decision to ban logo on tobacco pack has hurt ITC shares

ITC shares saw selling pressure amid fears about regulatory action at home after Australia called on the world to match its tough new anti-tobacco marketing laws that will ban logos on cigarette packs.

Shares in the tobacco major traded at the bottom of the Nifty index Thursday, underperforming the benchmark Nifty index, which was flat. In percentage terms, the stock fell the most since July 2. At 12.05 p.m., it traded 3.1 per cent lower at Rs 259.50 on the NSE, while the Nifty index was down 0.1 per cent at 5,375.

Shares in another tobacco firm VST Industries traded lower, falling 1.4 per cent to Rs 1,784.50.

The fall in ITC shares was more than its global counter parts. On Wednesday, shares in Philip Morris closed down 0.5 per cent in New York, while British American Tobacco fell 1.9 per cent. Imperial Tobacco was down 1.7 in London.

Australia's highest court banned logos on cigarette packs, dismissing a challenge from global manufacturers. British American Tobacco, Britain's Imperial Tobacco, Philip Morris and Japan Tobacco challenged the laws in Australia's High Court, claiming the rules were unconstitutional because they effectively extinguished their intellectual property rights.
The decision means that from December 1, cigarettes and tobacco products must be sold in plain olive green packets with graphic health warnings, such as pictures of mouth cancer and other smoking-related illnesses.

Although the impact of Australia on their global business is small, the law could have a major effect if it is adopted as a precedent in other countries, especially the fast-growing economies that cigarette firms see as markets of the future.

In 2009, the Supreme Court of India made it mandatory for tobacco companies to have pictorial warnings on cigarette packs. On every packet of cigarettes sold in India since December 2011, a photograph of a man with cloudy lungs accompanies the warning "Smoking Kills".

The laws are in line with World Health Organisation recommendations and are being watched closely by countries including Britain, Norway, New Zealand, Canada and India, which are considering similar measures to help fight smoking.

The World Health Organisation estimates that more than 1 billion people around the world are regular smokers, with 80 percent in low- and middle-income countries.

According to the global Tobacco Atlas, a report on smoking produced by the World Lung Foundation and the American Cancer Society, 17 percent of male deaths and 14 percent of female deaths in Australia are due to tobacco.

Tobacco firms say plain packaging laws violate their intellectual property rights and will stimulate a black market in fake or illegally imported cigarettes.  


(With inputs from Thomson Reuters)