Shares of ITC declined by nearly 3%, trading at ₹464.45, after reports surfaced about the Group of Ministers (GoM) proposing a special 35% GST rate on sin goods, including cigarettes and tobacco. This development has raised concerns about the financial impact on ITC, India’s leading tobacco and FMCG conglomerate, which derives approximately 45% of its revenue from the cigarette business. The proposed hike, aimed at restructuring GST rates, marks a significant shift from the current 28% GST plus 5%-36% compensation cess, depending on the length of the cigarette.
The proposal to introduce a 35% tax rate as a potential replacement or addition to the compensation cess could pressure ITC to implement high single-digit price hikes to offset the increased tax burden, as noted by Macquarie in their analysis. The firm retains an ‘Outperform’ rating on ITC, with a target price of ₹560, highlighting the company’s ability to navigate regulatory challenges but acknowledging potential near-term volume pressures.
As of 9:18 AM, ITC’s stock was trading down by 2.67%. Investors are likely to remain cautious ahead of the GST Council meeting on December 21, where the proposal will be reviewed. The outcome of this meeting could have a material impact on ITC’s margins and future pricing strategies.
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