The inventory plummeted to a contemporary 52-week low of Rs 362.7 in the course of the session as buyers scrambled to evaluate the harm from excise responsibility charges that might power worth will increase of at the least 15%.
Godfrey Phillips India, which sells Marlboro cigarettes within the nation, fared even worse, crashing as a lot as 19% in its steepest fall since November 2016.
The carnage adopted the finance ministry’s notification of excise duties starting from Rs 2,050 to Rs 8,500 per 1,000 cigarette sticks, relying on size, efficient February 1. The levy comes on prime of the prevailing 40% Items and Providers Tax (GST), making a cascading influence that has analysts warning of quantity losses and pricing strain.
“There are nonetheless numerous unknowns, however our calculation suggests a tax hike might be over 30% if NCCD continues; within the occasion NCCD is subsumed, the influence ought to nonetheless be properly over 20%,” Jefferies stated in a observe, calling the event “a transparent adverse.”
The brokerage warned that ITC might have to lift costs by at the least 15%—if not larger—to cross on the general influence to shoppers, probably driving volumes to the illicit cigarette commerce.
Nuvama analysts, which has downgraded the inventory to carry, stated the magnitude of tax hike appears larger than anticipated, possible prompting consensus downgrades to ITC’s cigarette quantity and EBITDA estimates in addition to multiples. Traditionally, after such a pointy hike, volumes lower 3–9%. For instance, FY11 logged a 3% quantity lower YoY after an ~18% worth hike versus a robust FY10 (7% quantity progress).
“A double-digit tax hike might push shoppers in the direction of smuggled cigarettes. Because the efficient date is Feb 1, we estimate January gross sales and manufacturing to sharply increase and subsequently report a decrease influence in Q4FY26. Throughout FY13–17, the responsibility on cigarettes elevated at a CAGR of 15.7%; nevertheless, tax income from cigarettes rose at a mere 4.7% CAGR. Thereafter, with relative stability in taxation till Jan-20, income collections grew ~10% (Apr’18–Jan’20 over Jul’17–Mar’18),” Nuvama’s Abneesh Roy stated.
ICICI Securities analysts calculated the responsibility interprets right into a 22%-28% improve in total prices for 75-85 mm cigarettes. “Cigarettes longer than 75 mm account for roughly 16% of ITC’s volumes and are more likely to see worth will increase of two–3 rupees per stick because of the levy,” they stated.
Additionally Learn | ITC, Godfrey Phillips shares crack as much as 8% on New Yr’s Day. What’s the unhealthy information?
The tax shock comes as the federal government’s compensation cess interval nears its finish. Jefferies famous that the revised GST fee on tobacco was not too long ago raised to 40%, which is able to amplify the influence as ITC implements worth hikes.
For buyers now nursing heavy losses, the important thing query is whether or not to purchase into the concern or await extra readability. “Whereas we’re nonetheless uncertain on the ultimate end result, if confirmed, this shall be a transparent adverse as volumes shall be impacted and considerations would additionally re-emerge on threat of shedding some volumes to the illicit trade,” Jefferies cautioned.
ITC, which controls the cigarette market with manufacturers together with Gold Flake, Wills Navy Minimize and Basic, now faces the unenviable process of balancing worth will increase with quantity retention in a market already battling illicit commerce.
(Disclaimer: Suggestions, solutions, views and opinions given by the consultants are their very own. These don’t symbolize the views of the Financial Occasions)
The inventory plummeted to a contemporary 52-week low of Rs 362.7 in the course of the session as buyers scrambled to evaluate the harm from excise responsibility charges that might power worth will increase of at the least 15%.
Godfrey Phillips India, which sells Marlboro cigarettes within the nation, fared even worse, crashing as a lot as 19% in its steepest fall since November 2016.
The carnage adopted the finance ministry’s notification of excise duties starting from Rs 2,050 to Rs 8,500 per 1,000 cigarette sticks, relying on size, efficient February 1. The levy comes on prime of the prevailing 40% Items and Providers Tax (GST), making a cascading influence that has analysts warning of quantity losses and pricing strain.
“There are nonetheless numerous unknowns, however our calculation suggests a tax hike might be over 30% if NCCD continues; within the occasion NCCD is subsumed, the influence ought to nonetheless be properly over 20%,” Jefferies stated in a observe, calling the event “a transparent adverse.”
The brokerage warned that ITC might have to lift costs by at the least 15%—if not larger—to cross on the general influence to shoppers, probably driving volumes to the illicit cigarette commerce.
Nuvama analysts, which has downgraded the inventory to carry, stated the magnitude of tax hike appears larger than anticipated, possible prompting consensus downgrades to ITC’s cigarette quantity and EBITDA estimates in addition to multiples. Traditionally, after such a pointy hike, volumes lower 3–9%. For instance, FY11 logged a 3% quantity lower YoY after an ~18% worth hike versus a robust FY10 (7% quantity progress).
“A double-digit tax hike might push shoppers in the direction of smuggled cigarettes. Because the efficient date is Feb 1, we estimate January gross sales and manufacturing to sharply increase and subsequently report a decrease influence in Q4FY26. Throughout FY13–17, the responsibility on cigarettes elevated at a CAGR of 15.7%; nevertheless, tax income from cigarettes rose at a mere 4.7% CAGR. Thereafter, with relative stability in taxation till Jan-20, income collections grew ~10% (Apr’18–Jan’20 over Jul’17–Mar’18),” Nuvama’s Abneesh Roy stated.
ICICI Securities analysts calculated the responsibility interprets right into a 22%-28% improve in total prices for 75-85 mm cigarettes. “Cigarettes longer than 75 mm account for roughly 16% of ITC’s volumes and are more likely to see worth will increase of two–3 rupees per stick because of the levy,” they stated.
Additionally Learn | ITC, Godfrey Phillips shares crack as much as 8% on New Yr’s Day. What’s the unhealthy information?
The tax shock comes as the federal government’s compensation cess interval nears its finish. Jefferies famous that the revised GST fee on tobacco was not too long ago raised to 40%, which is able to amplify the influence as ITC implements worth hikes.
For buyers now nursing heavy losses, the important thing query is whether or not to purchase into the concern or await extra readability. “Whereas we’re nonetheless uncertain on the ultimate end result, if confirmed, this shall be a transparent adverse as volumes shall be impacted and considerations would additionally re-emerge on threat of shedding some volumes to the illicit trade,” Jefferies cautioned.
ITC, which controls the cigarette market with manufacturers together with Gold Flake, Wills Navy Minimize and Basic, now faces the unenviable process of balancing worth will increase with quantity retention in a market already battling illicit commerce.
(Disclaimer: Suggestions, solutions, views and opinions given by the consultants are their very own. These don’t symbolize the views of the Financial Occasions)
