Updated June 2019
Stock Performance of ITC Ltd
- The share price of ITC Ltd has been going down gradually for the last couple of weeks.
- On 19th May 2019, when the exit poll results were declared, after that the share price of ITC Ltd has corrected by almost 10%.
- From a share price of Rs. 307 on 20th May 2019 has come down till Rs. Rs. 275.5 on 7th June 2019.
The same government has continued, but the still the stock got corrected. What are the reason behind this correction of 10% in ITC Ltd Stock?
Why is ITC Ltd Stock Falling?
- Before GST implementation, the taxation on cigarettes including cess and excise duties, used to be more than what it is now after the implementation of GST. Under GST, only 28% of tax was levied on cigarettes. Before GST, VAT, excise duty and cess levied on cigarettes was more than 28%. The government realised this later on but did not bring any corrections in it as it would have attracted negative sentiments. And the governed also couldn’t take an actions on it before the elections.
- But now, in the next GST Council meet, there are plans to add cess on the current 28% and increase the final taxation on cigarettes. There are also rumours that is final taxation would even go above what it was before GST implementation.
- Thus, there are high chances that prices of cigarettes may go up. And as a result of the price hike a sentimental negativity spreads. If prices go up, demand may go down, and if demand goes down then the revenue may get be directly impacted. The revenue may get impacted but is not for sure.
- In economic terms, cigarettes is an inelastic product. Inelastic product is a product whose demand remains the irrespective of the price hike or price cut. So, cigarette is an inelastic kind off demand. Thus, the price hike in cigarettes may have negligible impact. But still a sentimental negativity has been attracted towards this stock because of which its share price has corrected 10%.
- Nowadays, the institutional investors give a lot of importance to ESG parameters. ESG stands for Environment, Social and Governance.
- If there is any environment affecting activity/product of the company then that company is marked negatively. In the case of ITC, cigarettes are the reason.
- In terms of social as well, cigarette smoking impacts other people as well.
- From governance side, there is no problem. ITC is a very well-managed company.
- It can be clearly understood that the cigarettes business has the lion’s share in the business of ITC Ltd.
- The EBIT contributions of the various business verticals give clear image of the ITC has not yet been able to successfully diversify in their businesses.
- From valuation perspective, the cigarette business of ITC still has lot of growth opportunities.
- Overall, there has been no change in the business of ITC Ltd.
- The company is rated negatively on 2 parameters (environment & Social), because of which institutional investors may avoid this stock.
- Information related to cigarettes has just been presented for investors’ knowledge. We don’t promote any smoking or tobacco consumption products.
- The numbers that are used are approximate and have been rounded for presentation purposes.
- We are not in any way saying that this is a bad company or that the stock of this company is bad.
- We are also not suggesting anyone to immediately go and buy this stock or invest in the stock markets.
- Only an analysis has been presented here. No judgments or final statements are being made here.