ITC extends gain; up 8% in three trading days

ITC was up 3% to Rs 257 on BSE in intra-day trade, extending its 5% gain in the past two trading sessions, after the goods and service tax (GST) council has finalized four tax rate slabs ranging from 5% to 28%.

Luxury items like white goods, soaps, shampoos, etc. which currently attract taxes in the range of 30% - 35%, will now fall in the 28% slab. Coal, luxury goods (luxury cars, etc.) and “sin” goods like tobacco, alcohol, etc. would attract cess over and above GST.

Cess has a sunset clause of 5 years and will be reviewed annually. The cess so collected would be used to compensate the States for the revenue loss attributable to GST.

The analyst await clarity on item-wise tax rates, which would be decided by the Council at a later stage, to list out the sector wise impact/benefit of GST.

Meanwhile, since October 26, post July-September 2016 (Q2FY17) results, the stock outperformed the market by gaining 8%, as compared to 2.2% decline in the S&P BSE Sensex.

HDFC Securities maintain ‘buy’ rating on the stock with a target price of Rs 275 as ITC’s non-cigarette business (45% of sales and 15% of EBIT) has many levers which would unlock in the coming years.

“Positive cigarette volume growth suggests most of the unfavorable things have been absorbed now. GST and excise rate (in union budget) would be the decider for volume growth in FY18. However, in our opinion cigarette business can sustain 7-9% value growth in most of the scenarios in FY17-19,” the brokerage house said in Q2 results review.

J P Morgan too maintains ‘buy’ rating on the stock with price target of Rs 275 as cigarette volume growth is improving sequentially (4% in Q2) supported by stable pricing strategy adopted by the company. Among the non-tobacco businesses, performance of the other FMCG division was good, aided by strong growth in the noodles category (benign base), while other divisions registered subdued revenue growth.

“We like ITC’s focus on volume, and stagnation in share of illicit cigarettes is a positive trend. In our view, the next leg of stock performance will be influenced by the developments on the GST front,” the foreign brokerage said in report dated October 27, 2016.

At 12:17 pm, the stock was up 2.8% at Rs 256 on BSE, as compared to 0.78% rise in the benchmark index. A combined 12.68 million shares changed hands on the counter on BSE and NSE so far.