Shares of ITC closed nearly five per cent higher on Thursday even as the tax on cigarettes was hiked in the Union Budget 2023.
ITC, which is the largest cigarette manufacturer in the country, rebounded sharply after an initial lull to settle at Rs 378.80, gaining 4.81 per cent. This strong gain came after analysts said the tax hike announced in the budget is not very high and can be easily passed on to customers.
The company’s stock fell sharply by as much as 6.5 per cent to hit a day’s low of Rs 329 on budget day. This after Finance Minister Nirmala Sitharaman proposed a 16 per cent upward revision of National Calamity Contingent Duty (NCCD) on specified cigarettes. It may be noted that the NCCD on specified cigarettes was last revised three years ago.
For ITC, cigarettes contribute to a huge chunk of total business, while the rest of the revenue comes from FMCG, paper and hotel businesses.
Analysts at ICICI Direct said the net tax on cigarettes would increase marginally by 0.07 per stick to Rs 0.12 per stick, requiring a 1-3 per cent price hike for cigarettes in different categories.
The brokerage added that the hike is not very high and would be easily passed on by a small increase in prices. Meanwhile, brokerage firm Jefferies said in a note that the 16 per cent hike in NCCD duty rate directly translates into a tax of 1.5 per cent and the overall tax hike comes to around two per cent.
“This is a clear positive for ITC,” the brokerage added. The new NCCD duty rate will come into effect from February 2, 2023. Stocks of other cigarette and tobacco manufacturing companies, Golden Tobacco and Godfrey Phillip, also gained.
