Credit Suisse says GST overhang lifting a big re-rating trigger for ITC

MUMBAI: Following the announcement of rate structure on the Goods and Services Tax bill on Thursday, Credit Suisse said it expects shares of ITC to see a sharp rating as the government stated there will be no change in the current incidence of taxes on cigaretes. This removes the overhang of a disruptive change in taxation on cigarettes, said Credit Suisse.

Reacting to the news, shares of ITC rose 5% to Rs 252.20.

The brokerage firm retained outperform rating on the stock and raised target price to Rs 300 from Rs 290 on increase in target multiples for the cigarette business of ITC.

The overhang of higher taxation on cigarettes had supressed the stock even though the company has seen a strong operational recovery in the past few quarters with volumes growing 3-4% and earnings growing in double digits, the brokerage said.

"ITC trades at 24 times FY18 earnings which is a 30% discount to Indian FMCG stocks, due to the overhang of possible disruption from GST. As this overhang lifts, we expect strong re-rating of ITC," it added in a report.