ITC tanks big time

ITC is the big loser on the markets since opening bell, one of the reasons why the market too is down. The stock, which has closed yesterday at Rs.325.75, opened at Rs.293.20, breaching the lower circuit. It is currently down over 11% at Rs.289.90. Its 52-week low is at Rs.222.05.

A few days ago, in the first week of July, the stock was hitting new highs as the GST meant the company had to actually pay much lower taxes. But then came the ugly surprise  – the Govt hiked the tax burden (cess) on cigarettes by Rs.4.8 to Rs.7.90 per 10 sticks, based on their length and filter. The Finance Minister, announced pretty nonchalantly that this hike in cess with bring in Rs.5000 crore more to the Govt’s coffers.

This, in many ways shows that the Govt has gone back on its own promise where it had said that taxes would be kept revenue neutral. Such tinkering makes one wonder what more could get hiked ad hoc.

Following this hike in cess, brokerage houses have en masse downgraded ITC and cut target price. This hike, as per Morgan Stanley report, means a 11-21% increase in tax for cigarettes in FY18 v/s FY17 which is sure to impact volume growth and margins.