ITC share price up 10% post-Budget; why increase in cigarette tax is good news for company?

Shares of ITC are in focus post-Budget wherein the government announced to hike the National Calamity Contingent (NCCD) duty on cigarettes after a gap of three years.

The counter had cracked more than 5 per cent as soon as Finance Minister Nirmala Sitharaman on February 1 announced to hike NCCD duty on cigarettes by 16 per cent. However, it recovered swiftly to close in green. The scrip has since then advanced more than 10 per cent.

On February 1, the stock hit day's low at Rs 329.10 and reversed loses to close in green at Rs 361.40, gaining 2.57 per cent. On February 2, the stock finished nearly 5 per higher at Rs 378.60 and made a fresh 52-week high of Rs 384.70. 

The momentum in the scrip continued on Friday i.e. February 3, ahead of the declaration of Q3 result. The stock finished at Rs 380.70. The Kolkata headquartered company is scheduled to release its December quarter result today.

Domestic brokerage firm Sharekhan said that the announcement to hike NCCD duty on cigarettes was marginal at just 2 per cent in the Union Budget 2023. "The recent hike was much lesser than expected increase in the range of 5-10 per cent," the brokerage firm said in its report, adding that "there will be no major impact on ITC’s cigarette sales volume".

The NCCD is a part of the total tax levied on cigarettes. The total tax burden is about 52.7 per cent for cigarettes,. This includes GST, excise duty and NCCD. NCCD is about 10 per cent of the overall tax. 

With the latest hike in NCCD, cigarette companies will have to hike prices by 2-3 percent. The minimal hike can be easily passed on. Meanwhile, global brokerage firms have tagged Buy rating on the counter.  
ADD chart ITC shares have yielded a positive return of 15 per cent in 2023 so far. In the past 1 year, the stock has zoomed a whopping 62 per cent.  

Brokerage               Stock     Rating            Target

Morgan Stanley       ITC        Overweight       Rs 374

Jefferies                  ITC        Buy                    Rs 415

Goldman Sachs      ITC         Buy                   Raised to Rs 430 from Rs 410

Citi                          ITC         Buy                  Raised to Rs 415 from Rs 390

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