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CIGARETTE manufacturer BAT Zimbabwe could exploit the increase in the retail price of the product to increase market share, but revenue and volumes may dip, analysts have said.

However, management believes that despite the increase in excise duty last year and forecast marginal fall in industry sales, the group will be able to register moderate sales growth.

BAT pushed up the recommended retail price of cigarettes from $1,30 per 20s pack to $1,50 after the increase in excise duty to $20mille from $15mille effective December 1 2014. Effectively, the cigarettes manufacturer passed the entire cost of the increase in duty to consumers and also added a $0,10 margin to the previous recommended retail price of the product.

Management said prior to the excise duty increase, an estimated 40 percent of retailers charged the recommended retail price of $1,30 per pack while the remainder charged $1,50. As such, the cigarette maker’s management contends that there is a better chance of compliance in the retail price of $1,50 because the price was more convenient for consumers. Equities research firm, IH Securities, said industry wide price adjustments to a uniform and convenient price for all retailers could be the tonic BAT required to grow its market share.

“Furthermore, because cigarette prices have been increased industry-wide, competitors have been compelled to increase their prices from the convenient $1 per pack,” said IH Securities.

But the financial analysts believe that BAT may register a decline in sales and also see volumes retreating 3 percent in financial year 2015, as domestic consumers were price sensitive.

This is because it may be difficult to persuade retailers to forfeit margins by sticking to recommended retail prices in a difficult environment where bond coins have made pricing more flexible. Analysts expect revenue to fall by a moderate 2,3 percent in year 2015, supported by the 10 percent price increase, projected to result in a margins increase to 65,9 percent from 64,6 percent. In the year to December 2014, BAT posted a 6,6 percent growth in revenue from manufactured cigarettes while volumes surged 4,4 percent. The growth in revenue was offset by discontinuation of the cut-rug line in 2013, as total revenue came in flat at $44 million.

Gross profit margins came under significant pressure, falling to 67,5 percent from 64,6 percent in 2015. Net income was $13,5 million in 2014, a 256 percent increase year-on-year.

Source : The Herald