Post-Budget blues: ITC no longer among India’s top 10 most-valued firms

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Updated: Feb 04, 2020 9:56 AM

The stock fell by another 12% since Saturday after finance minister Nirmala Sitharaman proposed higher levies on cigarettes and other tobacco products in the Budget. The market expects ITC to take 10-12% price hikes, following the announcement of higher levies.

itc, mid cap, itc stock, itc stock price, budget 2020, nirmala sitharaman, budget 2020With a market capitalisation of Rs 2.6 lakh crore on Monday, ITC now ranks 12th

ITC, the country’s largest cigarette producer, has now lost its place among the top 10 companies by market capitalisation (mcap). The company commanded the highest weightage on Nifty50 about six years ago, but its mcap has seen a massive erosion over the last five years.

The stock fell by another 12% since Saturday after finance minister Nirmala Sitharaman proposed higher levies on cigarettes and other tobacco products in the Budget. The market expects ITC to take 10-12% price hikes, following the announcement of higher levies.

With an mcap of `2.6 lakh crore on Monday, ITC now ranks 12th after Bajaj Finance, State Bank of India and Bharti Airtel.
The stock has given up 39.4% from its July 2017 peak of `342.50 on the NSE, translating into an mcap erosion of a whopping `1.6 lakh crore. The company was ranked fourth most-valuable firm in 2017 with an mcap of `4.2 lakh crore. Analysts were quick to revise target price for the stock after the Budget announcement. While Credit Suisse downgraded the stock to ‘neutral’ from ‘outperform’, Edelweiss Capital cut the recommendation to ‘hold’. Interestingly, the cigarette major had boasted a weightage of 9% on Nifty50 at the end of January 2014, against 8.95% for Infosys and 6.84% for the Reliance Industries.

At `22,913 crore, cigarettes contributed 46.4% to the ITC’s total revenue in FY19, Bloomberg data showed. Credit Suisse sees the sharp increase in cigarette taxes as a heavy blow to ITC. Specific tax on cigarettes has increased 11%-16% across various slabs and this will require ITC to take a 10-15% price hike, in a very weak macro environment causing high single digit volume decline. “Even after taking price hikes of over 10%, cigarette Ebit likely to be flat in the best case in FY21,” it said, adding that the risk of GST cess hike doesn’t go away.

According to Motilal Oswal Financial Services, while cigarette volume growth of 2.5% in Q3FY20 was only marginally lower than estimates, cigarette Ebit growth of 5.6% continued its worsening trend and was the lowest in the past nine quarters. This was the quarter after the last GST hike when cigarette Ebit had grown only 2.3%. “Despite cheap valuations of 18.2x FY21/16.7x FY22 EPS, we maintain our ‘neutral’ rating owing to weak earning prospects and significant overhang of the GST hike,” the brokerage said.

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