ITC smokes a warning sign

ITC is currently the top loser of the day. The stock price is down over 3.5% at Rs.324, just a tad above its intra day low point of Rs.323.

The stock is down on fears as to what the implementation of the GST has in store for it. A Committee headed by Arvind Subramanian, Chief Economic advisor has recommended a 40% GST for tobacco and tobacco products, along with aerated beverages, paan masala and luxury cars.

The cigarette industry as such is reeling under huge tax burden. Since 2012, excise duty has gone up 98% and VAT has surged 124%. This has made cigarettes more expensive, leaving a telling effect on its volumes – down 15% since Q4FY15. If this 40% does get implemented, there is fear that volumes will get impacted further.

Sadly, it will get people off the habit of smoking but will increase the sale of illegal cigarettes and bidis. As such, these other tobacco products – bidi, chewing tobacoo, gutka, illegal cigarettes and kahini constitute 89% of total tobacco consumption in India.