The report says that export growth might remain muted in the current fiscal year due to likely higher production in key international markets:
With the likely increase in production in key international geographies, especially Brazil, demand for Indian tobacco is likely to be affected, and export volumes might fall, as per a report by India Ratings and Research (Ind-Ra).
The report emphasised that India, which contributes around 9 per cent to the global tobacco production, has witnessed healthy growth in exports both in value and volume terms in the past two years. India’s exports increased in value to over USD 1,449 million in 2023-2024 and almost touched USD 2,000 million in 2024-2025, the report added.
“A top tobacco-producing country, Brazil’s export growth was subdued at 1 per cent YoY in 2024,mainly on account of the fall in production to 400 million kilogram due to inclement weather. This shortage of tobacco increased raw tobacco prices to over Rs 300 per kg throughout PS24,” the report mentioned.
Ind-Ra highlighted that the substantial fall in raw tobacco prices will benefit tobacco processors’ near-to-medium-term margin profile. However, a sustained margin improvement can be achieved only with a steady increase in export volumes.
Raw tobacco price exceeded Rs 300 per kg during FY24-FY25, causing a 3 to 4 per cent contraction in the margin profile as it constitutes around 70 per cent of the total cost of production. However, the report added that tobacco processors saw a multifold increase in revenue during this period on account of an increase in export volumes from export markets.
“Tobacco processors will benefit in the near term as excessive raw tobacco supplies could result in a softening of raw tobacco prices, yielding higher contribution margin. However, volumes could be under pressure in the near term due to higher production in other exporting nations,” highlighted Abhash Sharma, Senior Director, Mid Corporates, Ind-Ra.
Sharma added that over the longer horizon, volumes will be constrained by the headwinds from evolving consumer preferences and various regulatory measures to curb smoking.
