Shares of ITC Ltd. rose more than 4% on Tuesday, making it the top contributor to the Nifty’s gains. The stock added close to 40 points, helping to offset the index’s losses.
In her budget speech, Finance Minister Nirmala Sitharaman made no changes to tobacco taxation, providing relief to ITC, which derives a significant portion of its revenue from cigarettes. This move alleviated concerns about potential tax hikes that could disrupt demand.
The decision to maintain current tobacco tax rates follows a 16% increase in National Calamity Contingent Duty (NCCD) last year. The unchanged rates signal stability in future policy, positioning ITC well for sustainable growth with strong business fundamentals.
ITC’s shares had been flat year-to-date and over the past 12 months following strong rallies in 2022 and 2023. The potential recovery in rural demand, boosted by a 12% increase in rural allocation in the Union Budget, is expected to benefit ITC’s non-tobacco segments, including FMCG and agriculture.
On Monday, brokerage firm Macquarie initiated coverage on ITC with an “outperform” rating and a price target of ₹535. Macquarie noted that ITC’s cigarette business has room for further growth and projected that non-cigarette EBIT could rise to 35-40% of the company’s overall EBIT in the next 10 years, up from the current 20%.
Morgan Stanley (MS) has an “Overweight” rating on ITC with a target price of ₹506. They noted that today’s budget, which did not include tobacco tax hikes, alleviates a key concern. This decision reduces the risk of near-term demand disruptions and signals stability in future policy. MS believes ITC is well positioned for sustainable growth with strong business fundamentals, viewing it as a potential re-rating play.
Of the 39 analysts covering ITC, 35 have a “buy” rating, while two each have a “hold” and “sell” rating.
Shares of ITC are currently trading 4.5% higher at ₹487.75, approaching their record high of ₹499.7.
