ITC, Godfrey Phillips Shares Drop on GST Hike Proposal for Tobacco

Shares of ITC, a leading cigarette manufacturer in India, experienced a nearly 3% drop during early trading on Tuesday. This decline followed reports that the GST tax slab for cigarettes, aerated beverages, and related products might be increased to 35%. 

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Similarly, stocks of other tobacco companies, including Godfrey Phillips (maker of Four Square) and VST Industries (manufacturer of Charminar), also faced pressure, with declines of up to 3%, despite an overall positive market trend.

In early trading, ITC's share price fell by 2.7% to ₹464.10, while Godfrey Phillips saw a 3.1% drop to ₹5,575.50. VST Industries also reported a 2.3% decrease, trading at ₹318.30 on the BSE.

The broader equity market, however, showed resilience, with benchmarks BSE Sensex and NSE Nifty opening higher and maintaining slight gains at the time of reporting.

The decline in tobacco stock prices was triggered by reports suggesting the Group of Ministers (GoM) on GST rate rationalization has proposed a new 35% tax slab for tobacco, aerated beverages, and similar products. Currently, these products fall under the 28% GST category.

According to an official quoted by PTI, the GoM has proposed retaining the four existing tax slabs (5%, 12%, 18%, and 28%) while introducing the new 35% rate specifically for these "sin" products.

The final decision will be made at the upcoming GST Council meeting, scheduled for December 21 in Jaisalmer, chaired by the Finance Minister. The Council will also deliberate on other tax proposals, including GST on life and health insurance premiums.

During the 55th GST Council meeting, the panel is expected to review the GoM's recommendations on rate rationalization in light of GST revenue trends. Additionally, the Council may assess progress on establishing the GST Appellate Tribunal, noted Maulik Manakiwala, Partner at BDO India.

Manakiwala highlighted that one of the key expectations from the meeting is a reduction in GST rates for health and term insurance. However, the exact nature and extent of relief remain to be determined.

The Council may also consider revising GST rates for specific products. Proposed changes include reducing GST on exercise notebooks and bicycles priced below ₹10,000, while increasing rates for watches above ₹25,000 and shoes exceeding ₹15,000.

ITC Ltd, a leading fast-moving consumer goods (FMCG) company, reported a 10.3% year-on-year increase in net profit for the September quarter, reaching ₹4,927 crore. The company's revenue from operations grew by 3.17%, rising to ₹17,705.08 crore compared to ₹17,159.56 crore in the same period last year.

The cigarette segment demonstrated robust performance, with ITC attributing the growth to a recovery in volumes previously lost to illicit trade. This rebound was supported by stricter enforcement measures and a relatively stable tax regime.

The FMCG division recorded an 8.3% revenue increase year-on-year, achieving ₹5,292 crore. Notably, the segment’s EBITDA margins improved by 150 basis points, reaching 11%.

ITC’s hotel business also delivered a standout performance during the quarter, achieving record-high results for the second quarter. Revenue in this segment rose by 21% year-on-year, while EBITDA margins expanded by 170 basis points to 30.7%.

Godfrey Phillips India Ltd, a leading cigarette manufacturer, reported a 23% increase in consolidated net profit for the second quarter ended September 30, 2024, reaching ₹248.31 crore. This growth was primarily driven by higher sales during the period.

The company’s consolidated total revenue from operations stood at ₹1,651.42 crore, while total expenses for the quarter amounted to ₹1,415.89 crore.

Revenue from the cigarettes, tobacco, and related products segment accounted for ₹1,610.06 crore, reflecting the continued strength of the company’s core business.