Tobacco-to-hotel entity ITC has lost 13 per cent of its market value, or Rs 40,428 crore, since Budget day due to a sharp rise in the excise duties on cigarettes proposed by Finance Minister Arun Jaitley. Analysts say the proposed duty rise will shave five per cent off its earnings per share in 2016-17. They have downgraded the company’s stock.
ITC’s shares closed five per cent down today at Rs 343 a share. Read our full coverage on Union Budget According to an analyst with Kotak Institutional Equities, ITC’s cigarette volumes have shrunk for the past seven quarters as continued price hikes have taken a toll. “Even as we expect the volume trajectory to improve from the 14 per cent decline reported in the December 2014 quarter, we believe cigarette volume growth trends will remain negative for at least another four quarters before the base effect kicks in and price hikes are absorbed,” Kotak analyst Rohit Chordia said in a note today. According to Elara Capital, this is the fourth year in a row of a sharp rise in excise, after a 20 per cent annual increase for the past three years. “These along with other non-tax measures give us a sense that the government has a clear intent to curb cigarette smoking during its term in office,” said an analyst with Elara Capital. An analyst with Prabhudas Lilladher warned the rise in excise duties would lead to severe pressure on volumes and profitability for ITC. Of its Rs 49,247 crore annual revenue, ITC earned Rs 30,417 crore from cigarettes and made Rs 10,419 crore profit from them. The consumer goods and hotels businesses earned Rs 12 crore and 146 crore of profits on revenue of Rs 8,128 crore and Rs 1,200 crore, respectively. The farm and paperboard business is another vertical, generating substantial revenue and profit. In January, Adani Enterprises announced a proposal to demerge the port and power businesses. This resulted in re-rating of all three companies, with share prices going up. (Inputs by Ishita Ayan Dutt)