BackITC shares hit record high on lower excise duty hike on cigarettes
ITC stock hit a record high of Rs279.90 a share and gained as much as 3.8%. The stock is gaining from the last three consecutive sessions and rose 9.3% in this period
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Mumbai: Shares of ITC Ltd hit an all-time high on Thursday after finance minister Arun Jaitley announced lower-than-expected excise duty hike on cigarettes in the budget on Wednesday.
The stock hit a record high of Rs279.90 a share and gained as much as 3.8%. The stock is gaining from the last three consecutive sessions and rose 9.3% in this period. In the last one month, the stock gained over 23%, while so far this year, it’s up 14.9%.
Other cigarette companies also gained. Godfrey Phillips India rose 3.4%, while VST Industries was up 0.5%.
However, the shares pared some of the gains as the market closed. The ITC Ltd shares closed up 1.48%, the Godfrey Phillips India shares closed up 1.82%, while VST Industries shares closed up 0.67%.
The 6% hike in excise duty on cigarettes, announced in the budget, is the lowest in the past six years, and, given expectations of a 8-10% hike (10% excise duty hike factored into our prior estimates), is a positive for cigarette companies, said a Kotak Securities report.
Talking about the duty hike, brokerage firm CLSA said ITC needs to take up a weighted average price hike of more than 4% to pass on the impact.
Interestingly, post the hikes of 14% in Goldflake and Navy Cut in December 2016, ITC has already largely passed on the impact, ahead of the budget.
CLSA estimates a double-digit 15% rise in cigarette earnings before interest and tax in fiscal year 2018 after two years of muted performance. The brokerage firm has maintained a “buy" rating on the stock.
Religare Institutional Research expects that the 6% excise duty hike on cigarettes is rational and manageable for ITC as it is in line with nominal inflation growth. We think the hike could aid ITC’s cigarette volumes, and accordingly build in FY17/FY18 volume growth of 2-4% for the company.
“With concerns over the Budget 2017 excise duty hike behind, all eyes would now be on the GST (goods and services tax) rate for cigarettes, which has the potential to alter the overall cigarette taxation dynamics," the Religare report added.
Of the analysts covering the stock, 37 have a “buy" rating, three have a “hold" rating, while two have a “sell" rating, shows Bloomberg data
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