Excise duty on cigarette: Brokerages positive on ITC but await GST rate changes

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Brokerages while remaining positive on the stock said the increase in excise duty on cigarettes was negligible that brings stability for the time being

ITC shares fell over a percent intraday on July 8 after the government announced a minor increase in tax on cigarettes that contributes more than 40 percent to the company’s total business.

Brokerages, however, remained positive while remaining positive on the stock. They said the increase in excise duty on cigarettes was negligible that brings stability for the time being.

The stock was quoting at Rs 276.65, down Rs 2.80, or 1.00 percent on the BSE at 1130 hours IST.

Here is what brokerages say about tax changes on cigarettes:

Credit Suisse

Overall Budget 2019 is positive for ITC as cigarette excise duty re-introduced on a technical ground and its impact is a negligible 0.2 percent hike in the current cigarette tax.

Despite fiscal needs, government desisted from hiking the overall cigarette taxes.

Cigarette tax stability is a relief for ITC and budgeted GST cess is in-line with expectation. We expect operating performance to keep improving and earnings growth is seen in the low-teens.

The overhang of a GST rate hike will remain. We maintained an outperform rating on the stock with a target price at Rs 370 per share,

Deutsche Bank

The government had demonstrated its intent to provide a stable tax change in cigarettes. Hence we believe this can aid in bringing back investor confidence and there is significant headroom for upside.

We view the stock as cheap with significant re-rating potential. We have model earnings CAGR of 15 percent over FY19-22.

Jefferies

For ITC, we are building in 10 percent tax increase in FY20.

The Budget was a positive surprise given only a nominal tax. We now await GST rate changes, if any, over next couple of months.

In case there are no changes in GST rates in FY20, it would be a significant positive for ITC. There will be a significant volume recovery and share gain if tax is not increased.

Source : https://www.moneycontrol.com/news/business/markets/brokerages-positive-itc-cigarette-tax-budget-4180621.html

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