ITC shares rebound 11% from day’s low despite hike in duty on cigarettes

Shares of ITC, the country’s biggest cigarette and second largest FMCG company, made a strong rebound from day’s low and surged 11% to hit a fresh all-time high of ₹365.65 on the BSE. The share price of the tobacco-to-hotels major dropped as much as 6.6% in intraday trade to ₹329 after the Union Budget 2023 proposed a hike in excise duty on cigarettes by 16%, which is negative for cigarette makers.

Earlier today, ITC share price opened marginally higher at 352.35, against the previous closing price of 352.25. However, the index heavyweight declined as much as 6.6% to ₹329 after the Finance Minister Nirmala Sithraman in her Budget 2023 speech announced a hike in the excise duty on cigarettes and tobacco products. The hike in excise duty on cigarettes was announced for the first time in three years, when the government increased the National Calamity Contingent Duty (NCCD) by 2-4 times across cigarette stick sizes in FY21, resulting in rise in tax between 9-15%.

However, the stock saw surge in volume trade and rebounded 11.1% from day’s low to hit a new all-time high of ₹365.65, breaching its previous high of ₹362 touched on November 11, 2022. The stock has risen 76.6% from its 52-week low of ₹207 on February 24, 2022.

On the volume front, 24.55 lakh shares changed hands over the counter as against the two-week average volume of 4.33 lakh stocks. As a result, the market capitalisation climbed to ₹4.44 lakh crore.

The largecap stock has gained 7.5% in the calendar year 2023, while it has risen 57% in the last one year. It has given a return of 16% in the last six months and 6% in a week.

ITC is the biggest cigarette maker in India with around 78% of market share in cigarettes and presence in staples, biscuits, noodles, snacks, chocolate, dairy products & personal care products. The rise in taxation on cigarettes is expected to impact volumes, going forward. However, the company has been gaining market share in cigarettes from last one year through new premium products and aggressive trade promotions.

The recent rally in ITC shares can be attributed to strong quarterly earnings and “buy” recommendations by many brokerage houses. For the July-September quarter of the current fiscal, ITC reported a 24% year-on-year growth in its consolidated net profit at ₹4,619.77 crore on the back of strong demand for its cigarettes and snacks. The cigarette-to-hotel conglomerate saw its revenue from operations jumping by 25% to ₹18,608 crore, from ₹14,844 crore in the same quarter last year.

Segment wise, revenue from cigarette climbed 23.3% YoY to ₹6,953.80 crore, which contributed to more than 80% of its net profit and about 45% of its revenue. The revenue from the non-cigarette fast-moving consumer goods (FMCG) business grew 21% to ₹4,885 crore during the quarter under review. Among others, the hotel business’ revenue surged 82% YoY to ₹536 crore, while agricultural business, the third major contributor to revenue, posted a growth of 44% to ₹3,997 crore.