• Notification Date: 21-01-2025
• Notification No: N/A

ITC Shares: Investors Prepare for Union Budget 2025 announcement of tax rise

All set for announcements of tax hikes on cigarette and tobacco products, investors in ITC are closely monitoring the Union Budget 2025. Higher taxation on such products may also help push GST up from 28% to 35%, making a case for a 6-7% hike in cigarette prices that raises tremendous concerns over the overall stock performance of ITC.

I-Tax has declined 10% in 2025. Participants in the market dread that the rise in tax is going to be more severe than that which is projected. Nuvama Institutional Equities believes though that a high tax hike is less likely as the government will not like its consumers to fall into the illicit cigarette market. Even with a small tax hike last year, legal cigarette volumes have recovered gradually, though slowing down in the urban markets.

While maintaining the "Buy" rating on the stock, Nuvama continues to keep its conservative near-term view with a weak FMCG business in Q3FY25. However, bright spots from renewed strength in the agriculture business of ITC with attractive valuations and solid dividend yield leave no scope for disappointment. Target on ITC has been slid down to Rs. 571 from Rs. 585 considering the plans for demerging the hotel business. Though gathering fears of a tax increase, Nuvama does not think this would be a problem to the cigarette business when duties went a little higher.

Legal cigarettes remain the single largest source of tax revenue from the tobacco industry; the market share might have eroded over time, but no letting go. Going into the Budget, investors would keenly watch if such measures impacted the ITC stock and, by extension, the sector.