ITC smokes a happy swirl

ITC is the top gainer on the BSE, going up almost 8% at Rs.289. It is much closer to its 52-week high of Rs.291.95.

Along with ITC, others – Godfrey Philips, Golden Tobacco and VST are also up in the green.

Yesterday, the GST Council approved the remaining two pointers in the Bill - approved the State GST (SGST) and the Union Territory GST (UTGST) bills, which now means that the GST can be now be legislated once it gets approval from the Parliament and state assembly. This looks like implementation of GST on 1^st July 2017 might actually become a reality.

ITC and all the cigarette stocks are happy because the Council has capped the tax on tobacco. The tobacco cess is to be capped at Rs.4170 per 1000 sticks or ad valorem of 290% or a combination of both.

This is lower than the current maximum current specific excise duty of Rs4,426 per 1000 sticks.

Though there is no clarity yet on the tax which cigarette companies could pay, there is relief that the uncertainty over the earlier recommendation that tobacco companies will get tapped into for compensation to states in case of revenue shortfall now ends. At least we know that they will not get the step motherly treatment.  

Following this, most brokerage/fund houses have either upped their target or put out a strong buy call for the stock.