Tobacco Notes: Philip Morris International
In our fortnightly tobacco note, we focus on Philip Morris International (NYSE:PM). Philip Morris has shut down a factory in Pakistan, while its representative in the Philippines has expressed skepticism over the Government’s lax approach towards a tax evading competitor.
We have a price estimate for Philip Morris of around $79, slightly lower than the market price.
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Illicit Cigarettes Haunt Philip Morris In Pakistan
The shutdown of Philip Morris’ plant in Pakistan has been blamed on the rise of illicit tobacco products. The company announced a reduction in production at the factory in 2012 due to competition from illicit cigarettes. Sources in the government of Pakistan have been quoted as saying that around 14 billion illicit cigarettes are sold in the country, which costs the government nearly $140 million in taxes each year. Competition from such products is lowering the demand for Philip Morris’ cigarettes. The sellers of the illicit products are able to sell them cheaper since they save on taxes. They also do not have to abide by the plain packaging requirements. [1]
Philip Morris Skeptical Of The Philippine Authorities
The president of Philip Morris’ joint venture in the Philippines has said that he doesn’t expect the government to act against alleged tax-evading cigarette manufacturers. He attributed the drawn out nature of the investigation into its key rival, The Mighty Corporation, to the government’s unwillingness to do its job. This comes after Philip Morris decided to let go of more than 10% of its workforce in the country in January. The company blamed the prevalence of the illicit cigarettes for the personnel reduction. [2]
Philip Morris’ market share in the Philippines has tumbled from 90% to 70% since 2013, while Mighty has grown to control a quarter of the market. Philip Morris attributes this rise to tax evasion, which would help it sell its cigarettes at a lower price. Mighty has maintained throughout that it pays the right amount of tax. An official of the Philippines tax authority has disputed these claims. [2]
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