ITC shares drop 2% amid GST tweaks; Analysts decode impact, stock strategy

Emkay retained an 'Add' rating on ITC with a target price of ₹475, noting that the stock offers decent upside potential

Shares of ITC fell over 2 per cent on Friday, two days after the government announced sweeping changes to the Goods and Services Tax (GST), making tax applicable on the transaction value of cigarettes instead of the earlier method.

 

The cigarette maker's stock fell as much as 2.37 per cent during the day to ₹406.05 per share, the steepest intraday loss since May 28 this year. The stock pared losses to trade 2.1 per cent lower at ₹406.6 apiece, compared to a 0.21 per cent advance in Nifty 50 as of 11:02 AM. The stock price of ITC opened 4 per cent higher, reacting to the development on Thursday. 

 

Shares of the snapped a three-day losing streak and currently trade at 5.1 times the average 30-day trading volume, according to Bloomberg. The counter has fallen 20.5 per cent this year, compared to a 4.8 per cent advance in the benchmark Nifty 50. ITC has a total market capitalisation of ₹5.08 trillion, according to BSE. 

 

Why are ITC shares volatile?

The GST Council, chaired by Union Finance Minister Nirmala Sitharaman, reached a consensus on Wednesday to adopt a simplified two-tier rate structure. The new rates will take effect from September 22, the first day of Navratri. A special rate of 40 per cent will apply to all luxury and tobacco-related products. 

 

While the council hiked that tax payable to 40 per cent from 28 per cent earlier, it decided that the GST will be levied on the Retail Sale Price (RSP), or Maximum Retail Price (MRP) instead of transaction value on Pan Masala, Gutkha, Cigarettes, Unmanufactured tobacco, Chewing tobacco like Zarda. 

 

JM Financial said that the initial understanding is that the MRP-to-tax ratio (for ITC) will come down to 40 per cent, against the current 47-48 per cent. "However, we believe we could see some increase in excise duty post the transition, either in the Union budget or future GST meetings to make tax incidence neutral for Cigarettes." 

 

Steady taxation in recent years has helped curb growth in illegal volumes, while supporting accelerated growth in legal volumes, which is positive for the government, Emkay said in a recent note. If the levy is imposed on MRP, ITC's competitive position would strengthen, the brokerages said. said.

 

Emkay retained an 'Add' rating on ITC with a June 2026 target price of ₹475, noting that the stock offers decent upside potential as prevailing overhangs ease.

 

Analysts at Motilal Oswal noted that the GST rate will now be applicable on MRP versus earlier on transaction value. Current total taxes are 50-55 per cent of MRP, and in case there is no additional duty beyond the revised GST rate, it is positive for the space, analysts said.