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Japan Tobacco Seeks to Expand Production in India

harvesting-tobaccoLast updated: March 17, 2010

Source: BusinessWeek via Bloomberg

Japan Tobacco Inc., the world’s third-largest publicly traded cigarette maker by volume, wants to expand production in India as the smoking rate declines in its home market.

The company has been waiting for government approval to make additional investments in its venture in India since June 2008, Executive Deputy President Masakazu Shimizu said in an interview in Tokyo yesterday. “It’s to expand production and sales locally,” he said, declining to provide details or the planned investment amount.

Japan Tobacco climbed as much as 4 percent in Tokyo trading today. The Tokyo-based maker of Mild Seven cigarettes is boosting overseas sales as a declining smoking rate and higher taxes stifle demand in its home market. India has about 120 million smokers, more than four times the number in Japan.

“Our expansion has been delayed as there are two sides in Indian politics: one wants to promote foreign investment, the other wants to curb it,” Shimizu, 56, said.

India may prohibit foreign direct investment in tobacco companies, the Economic Times reported Feb. 18, citing unidentified government officials.

Japan Tobacco wants to raise its stake in JT International India Private Ltd. to 74 percent from 50 percent, according to the company.

Tobacco Taxes

The Japanese government will raise tobacco taxes for the first time in four years in October as it tries to discourage smoking. The government will raise the duty by 3.5 yen per cigarette with tobacco companies able to charge an extra 1.5 yen.

“Overall demand may plunge by 20 percent because of the tax increase,” Shimizu said. Japan Tobacco will raise the price of some brands by more than 100 yen a pack to help offset falling demand, he said.

Japan Tobacco shares advanced as much as 13,000 yen to 337,000 yen on the Tokyo Stock Exchange before trading at 334,500 yen as of 10:40 a.m. local time. The stock has risen 8.4 percent since the government announced the tax increase on Dec. 22, while the Topix index has gained 4.6 percent in the same period.

The company, which is 50 percent government owned, trails Altria Group Inc. and British American Tobacco Plc. in production volume.

Written by Naoko Fujimura and Shunichi Ozasa

Editors: Fergus Maguire, Frank Longid

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