Viksit Bharat Budget 2024: ITC jumps 5% as govt keeps sin tax unchanged

Shares of ITC hit an over 11-month high of Rs 489.80, surging 5 per cent on the BSE in Tuesday’s intra-day trade post Finance Minister Nirmala Sitharaman’s Budget Speech. The Finance Minister has not made any changes in sin tax in Union Budget 2024-25. In comparison, the BSE Sensex and Nifty 50 were down nearly 1 per cent at 01:00 pm.

The stock price of cigarettes-to-hotels conglomerate was trading at its highest level since July 2023 and was 2 per cent shy from its record high level of Rs 499.60 touched on July 24, 2023. The stock has bounced back 22 per cent from its previous month low of Rs 403 hit on June 4.

 

Macquarie initiates ‘Outperform’ rating on ITC with a SOTP target price of Rs 535 per share. The brokerage firm sees above-peer EBIT growth for the key cigarette segment given ITC’s market share and innovation focus. This pickup will not impact continued diversification into non-cigarette segments, as tailwinds across FMCG and hotels offset weakness in paper, the brokerage firm said.

Meanwhile, the board of directors of ITC are scheduled to meet on August 1, 2024 to consider and approve the financial results of the company for the quarter ended 30th June, 2024 (Q1FY25).

ITC's cigarette business has seen volume recovery in FY23 and FY24, with cigarette volume almost at par with its peak volumes in FY13. Stability in taxes and various government initiatives to curb illegal cigarettes have been supporting the legal cigarette market. Motilal Oswal Financial Services model a 6.5 per cent revenue CAGR, 3.5 per cent volume CAGR and 6.5 per cent earnings before interest tax (EBIT) growth during FY24-26E with steady macros and taxes.

Taxes on cigarettes in India are 14x of US, 7x of Japan and 6x of Germany and so on. Further, the same is also substantially higher than that in neighbouring countries. Historically, steep increases in taxation have adversely impacted tax collections and legal cigarette volumes, while a stable tax regime has led to buoyancy in tax collections, ITC said in its FY24 annual report.

India is the world's second largest consumer of tobacco, yet legal cigarettes make up only 9 per cent of total tobacco consumption. Illicit trade in cigarettes causes an annual revenue loss of around Rs 21,000 crore. Legal cigarettes contribute over 80 per cent of revenue generated from the tobacco sector, analysts at Nuvama Institutional Equities said. The brokerage firm has ‘Buy’ rating on ITC with a target price of Rs 540 per share.

Going ahead, analysts at KRChoksey Shares & Securities believe a stable tax structure will help ITC continue to gain volumes from illicit trade. The FMCG-Others business continues to see stable growth on the back of its continuous focus on new and innovative launches and will see further improvement as consumption sees an uptick. Premiumization and cost optimization will continue to aid profitability for the FMCG-Others business. The pipeline of upcoming properties in the hotel segment will assist in maintaining a robust growth trajectory.