ITC Share Price: Why Mega Cigarette Stock Dropped 2.5% After 40% GST On Tobacco? BUY For Target Rs 512

The share price of ITC has been in focus this week due to the GST rate rationalization. Despite the GST reliefs on consumer products, which is a key positive for FMCG giants like ITC and its subsidiary ITC Hotels, the major eye-catching decision is the introduction of a 40% GST rate on sin and luxury goods. This means that tobacco products will now have a 40% GST rate from September 22nd onward, compared to the 28% rate.

ITC is a leader in the cigarette segment in India.

ITC Share Price:

At the time of writing, ITC stock traded at Rs 406 apiece, down by 2.4% on BSE, with market cap of Rs 5,08,582.51 crore. Overall, the stock traded near its day's low to Rs 405.60 apiece and declined by 2.5%.

GST Rate Of 40%:

Items like unmanufactured tobacco; tobacco refuse [other than tobacco leaves]; Cigars, cheroots; cigarillos and cigarettes; and of tobacco or of tobacco substitutes --- which currently has 28% GST rate --- will soon be part of 40% GST rate.

The 40% GST rate is also applicable on other manufactured tobacco and manufactured tobacco substitutes; "homogenised" or "reconstituted" tobacco; tobacco extracts and essences. Also, products containing tobacco or reconstituted tobacco and intended for inhalation without combustion --- will attract 40% rate.

The Council recommended retail sale price-based valuation under GST for Pan Masala, Cigarettes, Gutkha, Chewing Tobacco, Zarda, Scented tobacco and Unmanufactured Tobacco. Accordingly, consequent amendments in CGST Rules, 2017 and notifications will be carried out.

How Will Latest Changes In GST Rates Impact On ITC?

Analysts at JM Financial said, " On Cigarettes, our initial understanding is that MRP to tax ratio (for ITC) will come down to 40% (vs. currently at 47-48% ex of NCCD). However, we believe we could see some increase in excise duty post the transition either in Union budget or future GST meetings to make tax incidence neutral for Cigarettes."

ITC Share Price Recommendation:

As per MarketsMojo, ITC, a prominent player in the FMCG sector, has recently undergone an adjustment in its evaluation score. This revision reflects a shift in technical trends, moving from a bearish outlook to a mildly bearish stance. The stock's technical indicators present a mixed picture, with the MACD showing bearish signals on a weekly basis while the monthly perspective leans towards a mildly bearish outlook.

The consensus recommendation from 36 analysts for ITC Ltd. is STRONG BUY, according to Trendlyne. The average target price is at Rs 494.92 apiece, signalling nearly 22% potential upside.

Meanwhile, analysts at Devan Choksey said, " We have revised our FY26E/27E EPS estimates by -4.2%/-4.5%, as we factor in weaker EBITDA margins on account of higher input inflation. We value ITC based on SOTP valuation methodology, with Cigarette business at 14.0x FY27E EV/EBITDA, Agri. Business at 8.0x FY27E EV/EBITDA, Paper business at 4.5.0x FY27E EV/EBITDA, FMCG at 8.0x FY27E EV/Revenue, and its stake in ITC Hotels at INR 13.0 per share (reflecting a 20.0% hold-co discount), implying a target price of INR 512. We upgrade our rating from "ACCUMULATE" to "BUY" on the stock, led by structural growth in cigarette volumes and rapid scale up of other segments."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.