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igarette manufacturer PT Gudang Garam (GGRM) saw modest year-on-year growth of 12.4 percent in revenue, which reached Rp 40 trillion (US$3.6 billion) in the third quarter. In addition, the government's move to scrap another increase in excise tax could benefit the cigarette maker's profits.

The rise in revenue was coupled with a slight annual increase of 7.6 percent in net profit, which touched Rp 3.2 trillion in the third quarter.

Machine-made clove cigarettes contributed Rp 35.9 trillion, or equivalent to 88 percent, to total revenue. Of this revenue reaped by clove cigarettes, as much as Rp 33.6 trillion was derived from the local market, with the remaining 4.4 percent collected from exports.

Overall contribution from machine-made clove cigarettes rose 17 percent year-on-year, a contrast to the 7.4 percent annual dip in contribution from hand-rolled cigarettes, which only brought the cigarette maker Rp 4 trillion as of the third quarter.

The contributions from machine-made and hand-rolled cigarettes mirrored the product mix of Gudang Garam, which manufactured 52.8 billion sticks in total in the first nine months.

 As much as 74 percent of their products were full-flavored machine-rolled cigarettes and another 12 percent was machine-rolled light and mild cigarettes. Only 14 percent of their products were in the hand-rolled cigarette market category.

Bahana Securities head of research Harry Su said that he expected production volume to grow by 5 percent this year.

Gudang Garam manufactured 68 billion cigarette sticks altogether in 2012.

'There will also be an estimated 7 percent price hike,' he added.

He further said that so far, Gudang Garam's performance had been 'in-line with our expectations'.

The government had increased the tobacco excise tax by approximately 8.5 percent for 2013. The excise tax hike, in addition to inflation, has pushed cigarette manufacturers to raise the prices of their products.

Excise tax alone made up 70 percent of Gudang Garam's cost of goods sold this year, up from 68 percent in 2012. The cigarette maker's cost of sales went up by 11 percent year-on-year to Rp 32 trillion by the third quarter of the year.

Yet, AM Capital analyst Jason Nasrial said that the cigarette demand would not be dampened by market shakedowns, including economic volatility.

Inflation pressure has prompted a bearish consumer confidence index. Bank Indonesia data shows a dip in Consumer Confidence Index to 107.1 points in September from 107.8 points the previous month.

'However, people will still be smoking, recession or no recession,' Jason said. 'Indonesia is already [in] the top four markets in terms of cigarette consumption, given that the habit is deeply engrained in culture.'

He further said cigarette manufacturers were expected to benefit from the government's decision to scrap plans to increase excise tax once again in 2014.

The government cancelled plans to hike excise tax next year to minimize the effects of a 10 percent tax increases that regions will impose.

'The scraping of the excise tax hike will benefit to Gudang Garam's bottomline next year,' he said.