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GST impact on cigarettes: ITC stock falls most in 25 years, market cap plunges by Rs 50,000 cr

The share price of ITC on Tuesday fell the most in 25 years, a day after the Goods and Services Tax (GST) Council increased the cess on cigarettes.

The government is expected to earn about Rs 5,000-crore additional revenue through the increased cess.(Reuters)

The share price of ITC on Tuesday fell the most in 25 years, a day after the Goods and Services Tax (GST) Council increased the cess on cigarettes.

The stock closed 12.63% down to Rs 284.60 on BSE and ITC lost nearly Rs 50,000 crore in market capitalisation. The share prices of other cigarette manufacturers such as Godfrey Phillips India, which counts Philip Morris International as an investor, fell 5.69% and VST Industries fell 7.83%.

The government is expected to earn about Rs 5,000-crore additional revenue through the increased cess.

The cess on cigarettes of up to 65 mm was raised by `485 per 1,000 sticks in the case of both filter and non-filter ones. The cess was increased by Rs 792 per 1,000 sticks for non-filter ones between 65 mm and 70 mm and by `621 for filtered ones. And for filtered ones between 70 and 75 mm, the cess was increased by Rs 792 per 1,000 sticks.

Edelweiss, in a note to investors, said the government’s move to increase the overall taxation under the new GST rates has come as a surprise,  against the benefit seen under the previous GST rates declared by the government.

“This along with the ~6% hike in budget results in an overall tax hike of  16-17% for FY18 – ITC’s cigarette volumes have come under tremendous pressure during the period from FY13 to FY16 when the government had increased the excise duty on cigarette by 18% on an average, volumes were down by 20% during the said period. Government’s statement highlighting the fact that it is not right that demerit goods should be benefitted due to decrease in taxation and the same has led to windfall gains – suggests a tough stance of the government on the sin sector,” the note said

“Also, with cigarette under GST, it remains a key source for the government to address any deficit it may have due to GST implementation and hence uncertainly looms in terms of taxation. We remain positive on ITC over the long term as per capita consumption of cigarettes in India is 1/18th of China, while the proportion of legal cigarettes in overall tobacco consumption remains low at 11%,” the note added.

Of the 40 brokerages who track the stock, 32 has given it a ‘buy’ rating, six a ‘hold’ and the remaining two have given it a ‘sell’ rating.

A total of  15.9 crore ITC shares were traded on BSE and NSE, 12.63 times more than its six-month daily average volume of 1.26 crore shares.

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