ITC, Varun Beverages slip 5% on buzz of 35% GST on tobacco, aerated drinks

According to reports, the Group of Ministers (GoM) on GST rate rationalisation on Monday recommended a new slab of 35 per cent for tobacco, tobacco products and aerated drinks.

Shares of cigarette company ITC and aerated drinks Varun Beverages dipped up to 5 per cent on the BSE in Tuesday’s intra-day trade in an otherwise positive market on reports that the government may hike Goods and Services Tax (GST) on cigarettes, tobacco and aerated drinks.  Shares of Varun Beverages slipped 5 per cent to Rs 600 in intra-day trade amid heavy volumes. ITC was down 3 per cent to Rs 462.80 in intra-day trade today. Shares of ITC and Varun Beverages have corrected up to 12 per cent from their respective record highs of Rs 528.55 and Rs 682.84, respectively, hit on September 27, 2024 and July 29, respectively. Godfrey Phillips hit an intra-day low of Rs 5,576, and was down 1.5 per cent at Rs 5,669.  The Group of Ministers (GoM) on GST rate rationalisation, led by Deputy Chief Minister of Bihar Samrat Chaudhary, on Monday recommended a new slab of 35 per cent for tobacco, tobacco products and aerated drinks, the Business Standard reported quoting sources. At present, such products are taxed at 28 per cent. CLICK HERE FOR FULL REPORT  Meanwhile, in the past three years, the stock price of ITC has zoomed 110 per cent, while Varun Beverages has skyrocketed 424 per cent. In comparison, the BSE Sensex has rallied 39 per cent during the same period.  Varun Beverages is a key player in the beverage industry and one of the largest franchisee of PepsiCo in the world (outside USA). The Company produces and distributes a wide range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo.  PepsiCo CSD brands produced and sold by Varun Beverages include Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda, Seven-Up Nimbooz Masala Soda and Evervess. PepsiCo NCB brands produced and sold by the Company include Slice, Tropicana Juices (100 per cent and Delight), Seven-Up Nimbooz, Gatorade as well as packaged drinking water under the brand Aquafina.  ITC’s outperformance in the recent past as the company’s growth outlook has improved over the years, due to a stable taxation regime, following the implementation of GST.  ITC in its FY24 annual report said that taxes on cigarettes in India are multiple times higher than in developed countries viz. 14x of USA, 7x of Japan, 6x of Germany and so on. Further, the same is also substantially higher than that in neighbouring countries.  Historically, steep increases in taxation have adversely impacted tax collections and legal cigarette volumes, while a stable tax regime has led to buoyancy in tax collections. It is estimated that illicit trade causes an annual revenue loss of around Rs 21,000 crore to the Exchequer. The illicit cigarette trade also has a deleterious impact on farmers and farm workers engaged in the tobacco value chain, ITC said.