Government's decision on cigarettes and this company's shares crash, this much loss
A new government decision has created a stir in the stock market. Shares of a major FMCG company fell sharply upon news of a cigarette tax increase, shocking investors. This sharp decline has resulted in significant losses for the company.
ITC shares are facing significant pressure following the government's decision to impose new excise duties on tobacco and cigarette products. In early January, ITC shares fell nearly 5 percent, reaching a 52-week low of ₹345.
The stock also recorded a significant decline of nearly 10 percent in the previous trading session. This decline resulted in a loss of ₹18,104.35 crore for the company today.
What is the new decision of the government?
The Finance Ministry has announced that a new excise duty will be imposed on cigarettes and other tobacco products from February 1st. This tax will be in addition to the existing 40 percent GST.
Depending on the length of the cigarette, the tax will now range from ₹2,050 to ₹8,500 per 1,000 cigarettes. This means the longer the cigarette, the higher the tax.
This decision is expected to directly impact companies like ITC, as the cigarette business generates a significant portion of its revenue.
Why are ITC shares falling?
ITC's stock has fallen nearly 25 percent in the past year. It has fallen 16 percent in the past six months, 14 percent in three months, and nearly 13 percent in just one month. Investors fear that the tax hike will increase the cost of cigarettes, which could impact both the company's margins and sales.
Brokerages believe the tax will have the greatest impact on cigarettes measuring 75 to 85 millimeters in length. This segment is considered a significant portion of ITC's total cigarette volume. To offset the increased costs, the company may have to increase the price per cigarette by ₹2 to ₹3.
What does the brokerage opinion say?
Some brokerages have advised a cautious approach for now. They say that ITC's profits and volumes may remain under pressure in the short term. The company may initially bear the impact of the increased excise duty unless prices are gradually increased.
However, it is also believed that the demand for cigarettes in India does not historically decrease much, that is, despite the increase in prices, people do not stop purchasing completely.
Is it right to buy ITC now?
Experts believe the picture may be slightly different for long-term investors. ITC isn't just a cigarette company; it also has strong businesses in sectors like FMCG, hotels, agri-business, and paperboard.
These non-cigarette businesses continue to support the company, which could balance future earnings. Experts believe ITC has the advantage of pricing, cost control, and large-scale operations. Over time, the company can significantly mitigate the impact of taxes through new strategies.
Stock market