ITC hits over 8-month low, falls below Rs 400 mark; down 14% post Budget

According to media reports, the Indian government could consider raising GST on cigarettes and other tobacco products to 40 per cent once levy of compensation cess on cigarettes is stopped

Shares of ITC hit an eight-month low, and fell below the Rs 400-mark to Rs 396.30, down 2.5 per cent on the BSE in Thursday’s intra-day trade. The stock of the cigarettes and FMCG player dropped after reports suggested the government is looking to hike goods and service tax (GST) on cigarettes. The stock is trading at its lowest level since June 4, 2024. It had hit a 52-week low of Rs 377.74 (adjusted to demerger of hotel business), BSE data shows.

 

Since February 1, post Union Budget 2025-26, ITC has corrected 14 per cent. In comparison, the BSE Sensex was down 2.3 per cent and the BSE fast moving consumer goods (FMCG) index declined 10.3 per cent during the same period.

 

At 10:31 am, ITC shares were trading 1.2 per cent lower at Rs 401.45, as compared to the 0.34 per cent decline in the benchmark index.

 

Meanwhile, shares of Godfrey Phillips India dipped 6 per cent to Rs 6,151 on the BSE in intra-day trade on profit booking. In the past one month, the stock had rallied 50 per cent.

 

ITC is a diversified consumption play with presence in businesses such as cigarettes, FMCG, Agri and Paperboard, Paper & Packaging (PPP) in India. Its strategy tilts towards utilising funds generated from its cash cow cigarette business in improving the growth of FMCG and other businesses.

 

According to media reports, the Indian government could consider raising GST on cigarettes and other tobacco products to 40 per cent once the levy of compensation cess is stopped on cigarettes. They currently face a GST rate of 28 per cent besides cess and other levies resulting in total indirect tax of 53 per cent, which is below WHO’s recommendation of 75 per cent.

 

The proposal is to levy a GST of the highest permissible limit of 40 per cent and top that with an additional excise duty. Government will make sure that tax revenue will not fall short once the levying of compensation cess, scheduled to end March, 2026, stops.

 

The government has not increased taxes/levies on cigarettes for the last two year. The last increase was in the low single digit in the 2023 budget. This aided cigarette companies to gain share from illicit cigarettes, according to ICICI Securities.

 

Going ahead, if the levy increase is above 7 per cent, it will have an impact on sales volume due to price hikes, while a less than 7 per cent hike will get absorbed in the market without having a significant impact on the sales volume. Hence, we need to monitor how much the increase in levies/taxes on cigarettes would be after the proposed changes implemented by the government, the brokerage firm said in a note.

 

In the October-December quarter (Q3FY25), the cigarette sales volume growth stood at ~6 per cent, which was better than 3 per cent volume growth in H1FY25 (April to September). Strategic portfolio and market interventions, with a focus on competitive belts and to counter illicit trade, drive volume-led growth and reinforce market standing, ITC said.

 

With improving agri terms-of-trade, healthy kharif output and improvement in rabi sowing, rural consumption is expected to build on the gradual recovery momentum witnessed in recent months; there are incipient signs of recovery in urban demand as well. ITC anticipated moderation in inflation, uptick in government spending and private investments, and the Government's thrust on public infrastructure & the rural sector augured well for boosting economic activity and a pick-up in consumption demand.

 

Analysts at ICICI Securities believe good traction to premium products and share gains from illicit trades help the company to achieve an uptick in the volume growth. No increase in tax rate on cigarettes in the recently concluded Union Budget will maintain the decent volume growth momentum of 4-5 per cent in the coming quarters.

 

ITC will continue to invest to improve its growth prospects of businesses such as FMCG and paperboard, paper & packaging in the coming years, the brokerage firm said in the Q3 result update. It recommends 'Buy' rating on ITC with a SOTP price target of Rs 525.

 

Analyst at KRChoksey Shares and Securities remain positive on ITC’s long-term outlook, supported by strong cigarette market share, robust FMCG execution, stable taxation, and rural demand recovery. Gradual urban demand revival, growing nicotine exports, and a low base in FMCG and Paperboards should drive growth in FY26E, the brokerage firm said.