Shares of Godfrey Phillips India regained strength in Wednesday's intraday session, rising 13.5% to reach ₹11,130 apiece after being under pressure in recent trading sessions. Earlier this month, the stock saw a stellar rally following the release of the company's June-quarter results, which pushed it past the ₹11,000 mark for the first time and to a new all-time high of ₹11,444 apiece.

However, the rally fizzled out, and the sell-off deepened after reports suggested that cigarette makers are unlikely to benefit from the GST rationalization proposed by the government last week.

According to media reports, the proposed GST revamp would replace the current four-slab structure with two principal rates: 5% as a standard rate for essentials and daily-use goods, and 18% as a merit rate for most other goods and services.

The 40% slab would continue for sin goods, though reports also suggest that the government may consider raising it to 60% to offset potential revenue losses from GST rationalization.

At present, cigarettes already carry one of the highest tax burdens in India, combining GST, compensation cess, and the National Calamity Contingent Duty (NCCD). Policymakers have indicated that even under GST 2.0, the overall incidence is likely to remain broadly unchanged.

For instance, chewing tobacco currently faces a 160% cess and gutkha a 204% cess on top of GST, which means the effective tax rate already exceeds the proposed 40% cap. With the compensation cess set to end in March 2026, the Centre and states may explore new forms of taxation, such as health or green levies, to maintain revenues while meeting public health objectives.

The compensation cess, which was put in place in July 2017 to make up for the money that states lost after the GST went into effect, is added to the 28 percent GST on certain luxury and harmful goods like cars, carbonated drinks, and tobacco.

Reports stellar performance in Q1

Godfrey Phillips, which owns cigarette brands like Four Square, Red & White, and Cavanders, delivered robust domestic cigarette sales volume growth in Q1 FY26, reaching 1,903 million per month, marking an increase from 1,497 million per month in Q1 FY25.

This reflects continued growth in quarterly sales and builds on the consistent upward trend observed throughout FY25. Against the backdrop of strong volume growth, the company reported a 36.5% YoY jump in revenue to ₹1,486 crore, while higher production costs and expenses hit the company's margins. However, net profit grew by 55.9% YoY to ₹356 crore.

It further strengthened its partnership with Philip Morris International for the manufacture and distribution of Marlboro brand cigarettes in India. The company has been steadily gaining domestic market share while maintaining focus on its international business, which contributed 25% of net sales during the reporting quarter.

Dalal Street also seems to favor the company's growth targets, as its shares have gained 114% so far this calendar year, building on a strong gain of 147% registered in the previous calendar year.