ITC shares hit 52-week-low as cigarette prices set to rise post Budget

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Published: February 3, 2020 10:33:35 AM

Share price of FMCG major, ITC hot a 52-week low of Rs 205 on Monday as the markets opened after Nirmala Sitharaman's second Union Budget speech, which proposed an increasing the National Calamity Contingent Duty on cigarettes.

The budget proposed NCCD be increased on cigarettes, “ranging from Rs. 200 – 735 per thousand, depending upon the length of cigarette and on filter/non-filter basis.”

Share price of FMCG major, ITC hot a 52-week low of Rs 205 on Monday as the markets opened after Nirmala Sitharaman’s second Union Budget speech, which proposed an increasing the National Calamity Contingent Duty (NCCD) on cigarettes and other tobacco products. ITC accounts for the majority of the cigarettes sold in the country legally.

ITC’s shares dropped down to Rs 219.00 on February 1, after the Finance Minister’s budget speech and were trading down by 5.50 per cent during early trade on Monday.

The budget proposed NCCD be increased on cigarettes, “ranging from Rs. 200 – 735 per thousand, depending upon the length of cigarette and on filter/non-filter basis.” On smoking mixtures for pipes and cigarettes, an increase from 45% to 60% was proposed by the way of NCCF while on other forms of smoking tobacco (other than smoking mixtures for pipes and cigarettes) and forms of chewing tobacco, NCCD would add 10% to 25% on the present value.

According to Edelweiss, the present hike in NCCD on different sizes of cigarettes is in the rage of 212.8% to 388.9% over the financial year 2017-18. After Sitharaman’s announcement on the proposed excise duty hike, by way of National Calamity Contingent Duty on cigarettes and other tobacco products, shares of cigarettes and other tobacco-related companies took the biggest knock.

Notably, ITC, which reported its results for the quarter ended December 31, said that cigarettes contributed Rs 5,310 to its revenues, an increase of Rs 237 crore from the same quarter last year. ITC in a regulatory filing had said, “Performance during the quarter reflects the persistent weakness in the overall demand environment, especially in rural markets and wholesale channel, tight market liquidity conditions and the increasing salience of illicit trade especially at the premium end.”

ITC had said that extremely stringent regulations along with a punitive and discriminatory taxation regime on cigarettes in recent years have had numerous negative, albeit unintended repercussions on the segment. With the increase in NCCD, the cigarette-to-soap conglomerate is staring at hiking prices in a weak macro-economic scenario.

In a release, the Tobacco Institute of India (TII), a representative body of manufacturers, farmers and exporters of the cigarette segment of the tobacco industry, said the increase in NCCD announced in the Union Budget 2020-21 and the resulting escalation in cigarette taxation leading to higher tax arbitrage will serve as a huge incentive to illegal cigarette trade operators, who target India as a preferred destination for smuggled cigarettes.

Around 10.10 AM, the S&P BSE Sensex was trading over 100 points higher at 39,843.11, while the broader Nifty 50 index was ruling at 11,702, up 41 points or 0.35 per cent.

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