ITC hits new high; gains 8% in two trading days

ITC gained as much as 5% to Rs 300, extending its Friday’s 3% gain on BSE, after the Goods and Services Tax (GST) Council has announced the tax rates for the various items.

The stock is trading at its highest level on BSE and on the National Stock Exchange (NSE). It was the largest gainer among the S&P BSE Sensex and Nifty 50 index at 09:52 am. A combined 8.74 million shares changed hands on the counter on BSE and NSE so far.

GST would replace Value Added Tax (VAT), while length based excise duty structure on cigarettes would continue. GST tax rate of 28%, combined with 5% cess on specific excise duties (SEDs) per stick, combined with a reduction of c.4-6% in SEDs, would be broadly neutral for ITC, Jefferies, the foreign brokerage said in a note.

Introduction of GST would wane the cross border cigarette trade due to differential VAT rates currently across states. While the duties on Beedis would be considered in June, rate for GST compensation cess on chewing tobacco increased significantly to 160-204% range (earlier duties 18% and VAT of 45-65%). Our channel checks suggest that c.50-60% consumers of cigarettes also consume chewing tobacco and this sharp increase on chewing tobacco should aid cigarette consumption going forward, added report.

“With the government focus on keeping tax on items of mass consumption low, this sector could be the clear winner. While milk, grain and cereals are exempt from GST; other products like sugar, tea, coffee and edible oil will attract just 5% GST,” Angel Broking said in a client note.

This will benefit companies like Nestle. While, personal care items will be taxed at the peak rate of 28%, items of mass consumption like hair oils, soaps and toothpaste will be taxed at 18%. This will be beneficial for companies like Marico, Dabur and Colgate. Overall, the food side of the FMCG business is likely to benefit from the GST, added note.

ITC Limited