Shares of ITC went on a roller coaster ride on Monday as the Finance Minister Arun Jaitley proposed to increase excise duties on various tobacco products other than beedi by about 10 to 15 percent.
The stock tumbled to intraday low of Rs 268 per share, down 8 percent. However, the stock quickly gained and ended with 2 percent gains. Godfrey Phillips India and VST Industries were up 1-5 percent at closing.
Analysts were already expecting an excise duty hike of 10-17 percent in cigarettes in FY17. Cigarette industry is already facing a crunch in volume in last few quarters due to multiple excise duty hike initiated by the government for four consecutive years. In FY15-16, excise duty was hiked 25 percent in cigarette lengths less than 65mm and 15 percent increased for lengths over 65 mm.
ITC’s key product tobacco-based items mainly cigarette sales volume saw a moderate decline in December quarter to 4.5 percent after four quarters of double digit declines. ITC’s cigarette sales volume has fallen over 20 percent in the last three years due to steep increases in taxation and subsequent price hikes.
After Q3 results, analysts were, however, hopeful of growth in cigarette volumes.
Jefferies had said that low single-digit decline in cigarette volumes was better than beaten-down expectations and likely indicates a bottoming out of demand.
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