Godfrey Phillips, ITC off their peaks

Lower-than-expected excise hike on cigarettes in Budget was a key reason for rise in 'share price

The stocks of cigarette majors ITC and Godfrey Phillips came off their peaks on Wednesday, settling at Rs 319 and 1,159 a share on the BSE exchange. This came after shares of the companies rose for two straight days, with the highest gain seen on Tuesday.

The lower-than-expected excise duty hike on cigarettes was one of the key reasons for the increase in share price, said analysts tracking the companies. Additionally, no mention of a stake sale in ITC cheered investors, analysts added. The government holds a 11.19 per cent stake in the company through the Specified Undertaking of the Unit Trust of India and speculation of a divestment of this stake has been doing the rounds for some time now.

The stock had reacted negatively when news of a stake sale just before the Budget gained steam.

ITC was instrumental in pushing up the benchmark Sensex on Tuesday, although the stock was not a contributing factor to its rise on Wednesday. The Sensex, for the record, closed Wedn-esday’s trade at 24,242.93, up 463 points.

Premal Kamdar, analyst at brokerage Religare Institut-ional Research, said: “The government has hiked excise duty on cigarettes by 10 per cent across segments. This is lower than our estimate of a 15 per cent year-on-year hike as well as increases of 15 per cent year-on-year taken during the last four years. We expect ITC to easily pass on the excise hike to consumers with a minimal impact on its cigarette volume growth.”

“Ten per cent increase in cigarette excise is a big relief compared to FY15/16 hikes of 22 per cent and 13 per cent, respectively,” Credit Suisse analysts Arnab Mitra and Rohit Kadam wrote in their note recently.

After five years, cigarette price hikes in FY17 are likely to be lower than nominal GDP growth, the analysts added.

Experts predict ITC to increase cigarette prices by 5-7 percent on the maximum retail price to pass on the full impact of the excise duty hike announced in the Budget.