MOSL: ITC (Neutral)-New GST rates a huge dampener
ITC: New GST rates a huge dampener
(ITC IN, Mkt Cap USD60.6b, CMP INR285, TP INR280, 2% Downside, Downgrade to Neutral)
On 17 July 2017, the Indian government announced the new GST rates applicable on cigarettes. The tone of the GST Council's press release appeared to indicate a reversal to neutral GST levels, from the earlier indication of beneficial rates for ITC after the abolishment of additional excise duty (as per the 1 July announcement). However, a closer look at the latest press release indicates that the revised GST rates are higher than the erstwhile indirect tax rates, and also much higher than the assumed GST rates after the announcement on 1 July 2017.
- Post new rates, there is (also refer Exhibits 1-4):
- 7% increase in tax incidence in the sub 65mm segment over the pre-GST levels (+14% over earlier assumed GST levels).
- 5% increase in tax incidence in the 65-70mm segment over the pre-GST levels (+15% over earlier assumed GST levels).
- 6% increase in tax incidence in the 70-75mm segment over the pre-GST levels (+13% over earlier assumed GST levels).
- 11% increase in tax incidence in the >75mm segment over the pre-GST levels (+17% over earlier assumed GST levels).
- Assigning weights to each segment based on percentage of sales (refer Exhibit 5), we get a weighted average increase of 6.2% on tax incidence for ITC over pre-GST levels and a 15% increase compared to the earlier assumed GST rates.
ITC is a diversified manufacturing and marketing company which is based in India. Co. maintains an operating presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While Co. is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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