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ITC Relieved From the Hang-Over of GST Tax Structure

Author: Bappaditta Jana
by Bappaditta Jana
Posted: Nov 05, 2016

As fears of goods and service tax (GST) overhang subsided after GST council has finalized four-tier tax structure, ITC share price rose over 6 percent intraday on Friday. Earlier, there were qualms about charging the higher tax on tobacco post-GST. ITC obtains over 45 percent of its revenue from tobacco products.

The sin or demerits products like tobacco, aerated drinks, pan masala and luxury cars will be taxed at 28 percent with additional cess, the quantum of which has not been finalized. However, the government has signaled that overall tax incidence on these categories will stay broadly unchanged.

The GST Council has finalized the tax structure of 5, 12, 18 and 28 percent. Essential items will be taxed at 5 percent while white goods like TV and refrigerators may witness some tax relief. The GST panel has also permitted cess on tobacco, luxury products, and sin items. This cess will not be additional and won’t add to states or consumers load. Taxation on gold will be decided upon the revenue flexibility.

Meanwhile, at 1:23 PM, ITC share price was trading at Rs. 250.05, up by 4.06% at NSE, while the Benchmark Index Nifty traded in red with the decline of 0.33%.

Most analysts are optimistic on ITC, given sharp underperformance in past months on GST concerns. Some uncertainty will remain on the final taxation change for ITC and earnings impact could be gauged only as clarity emerges on quantum and nature of cess on sin products.

ITC has observed a strong operational recovery in the past few quarters with volumes growing 3-4 percent and earnings growing in double digits. ITC is at a big discount to other FMCG stocks due to the hang-over of GST.

Surprisingly, ITC’s cigarette revenue increased 7 percent in Q2 at Rs 8528 crore as compared to Rs 7963 crore year-on-year. ITC had said that it delivered another quarter of steady performance in spite of a challenging operating environment marked by continuing pressure on legal cigarette industry, increase in input cost and subdued demand conditions existing in the FMCG industry.

ITC posted the net profit at Rs 2500 crore in July-September quarter up 10.5 percent as compared to Rs 2262.5 crore in corresponding last financial year. During the period, its total income registered an 8 percent growth at Rs 13616 crore as against Rs 12611 crore on an annual basis.

ITC is the top 500 performing share for the quarter as recommended by Dynamic Levels from among the 1700 listed stocks. For the support and resistance levels of the stock, visit ITC share price forecast page of Dynamic Levels website.

About the Author

A writer by day and a passionate reader by night. Writing just doesn't fill my pocket but it also fills my heart. Passion for writing about new events & happenings is what soothes my mind & soul.

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Author: Bappaditta Jana

Bappaditta Jana

Member since: Jun 26, 2016
Published articles: 280

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