ITC Ltd on Monday lost its place in the list of the country’s 10 most-valued companies in terms of market capitalisation after the government proposed a hike in tax on tobacco and cigarettes.
Investors have lost over ₹33,000 crore in market capitalisation in the last two trading sessions with the stock falling over 9.4%, its biggest two-day fall in 18 months. It was at a nearly four-year low after a slew of cut in earnings and the stock’s target price has been cut.
The stock traded at ₹210.00, down 4%, while the benchmark Sensex was at 39,978.48 points, up 0.6%
With a market cap of ₹2.57 trillion, ITC now ranks eleventh, and has been replaced in the top 10 by Bharti Airtel Ltd and State Bank of India with market cap of ₹2.74 trillion and ₹2.68 trillion, respectively.
“The tax increase in the Union Budget comes as a negative surprise and is likely to affect earnings growth in the near term. Based on our workings, the hike in cigarette duties is likely to result in a weighted average consumer price increase of 6-7% for ITC, with price increases being higher at ~8% in 64mm cigarettes,” said Emkay Research in a note to its investors.
The brokerage firm has maintained its ‘hold’ rating on the stock and revised its target price to ₹245 from ₹274 a share.
Finance minister Nirmala Sitharaman, in the Union Budget for 2020-21, proposed a roughly 10% hike in excise duty on cigarettes across lengths.
Brokerages have cut FY21-22 estimates by 4-6% on the stock. Analysts said the valuations have corrected but earnings visibility remains weak given the further increase in cigarette taxes.
“Though the stock is trading at a steep discount to other FMCG peers, we believe that the stock would remain under pressure. Consequently, we are downgrading the stock to ‘Reduce’ with TP of ₹238,” said Dolat Analysis, in a note to its investors.
Brokerage firm SBI Capital has maintained its hold ratings and cut its target price to ₹235 from ₹265 earlier.
Currently, ITC has 29 buy ratings, eight hold ratings, and one sell rating, according to Bloomberg.
Currently, Reliance Industries Ltd is the country’s most valued company with a market cap of ₹8.77 trillion, followed by Tata Consultancy Services Ltd ( ₹8.12 trillion) and HDFC Bank Ltd ( ₹6.57 trillion).
Hindustan Unilever Ltd is number four ( ₹4.49 trillion), followed by HDFC Ltd ( ₹3.92 trillion), Infosys Ltd ( ₹3.32 trillion), ICICI Bank Ltd ( ₹3.26 trillion), Kotak Mahindra Bank Ltd ( ₹3.15 trillion), Bharti Airtel Ltd ( ₹2.74 trillion) and State Bank of India ( ₹2.68 trillion).
