ITC rallies on hope of GST booster

NEW DELHI: Shares of cigarette maker ITC hit a record high on Monday as GST rollout is seen to be favourable for the company’s prospects. There are hopes that under the new regime the overall taxation burden on cigarettes may have fallen to about 37-38 per cent from about 44 per cent, even though there is still no clarity yet on the matter .

“We have not really seen the notification yet. Earlier, the excise duty used to be levied, and VAT used to be calculated over and above that. So there was a tax on tax. The tax rates have remained neutral, but this tax on tax part will not be there. What I understand is that as there is an anti-profiteering clause, and as such prices should go down by at least 5-7 per cent or maybe even more, which probably will benefit the companies and really help aid growth at least in FY18,” Sanjay Manyal of ICICI Securities told ETNow.

ITC shares rallied 9 per cent to hit a record high of Rs 353.20 on BSE in morning trade on Monday. The scrip eventually closed the session at ​ Rs 342.30, up 5.70 per cent.

Rajen Shah, Chief Investment Adviser of Tradebulls, said ITC could gain as the unorganised beedi market is three-to-five times bigger than the cigarette market.

“If that differential comes down, ITC would be a significant beneficiary of that. In addition, valuations of ITC are not-so expensive -- It is at about 28-30 times FY18 earnings. It’s FMCG business would also do very well because there is a huge unorganised market in the biscuit category,” Shah said.

Manya said his brokerage has a target of Rs 344 on the stock but it will soon be revising it, as the news would be really positive for the cigarette companies.