ITC shares fall over 3% as GoM propose special 35% GST for cigarettes: Should you buy, sell or hold ITC shares?

After media reports suggest that rate rationalisation is likely in the upcoming GST council meeting and the Group of Ministers (GoM) have proposed a higher 35 per cent GST rate on aerated drinks as well as tobacco and tobacco products.

This 35 per cent rate is in addition to the already existing slab structure comprising 4 GST tax slabs of 5 per cent, 12 per cent, 18 per cent and 28 per cent.

Zee Business citing sources said that this GST rate rationalisation is proposed for ready made garments together with a total of 148 items  . So, as cigarette draws a major chunk of the revenue for the cigarette-to-hotel conglomerate ITC, here is what brokerages and analysts infer:

Zee Business Managing Editor Anil Singhvi held that at the current juncture this rate rationalisation or probably GST rate hike is not required as it wil weigh on consumption and help delay the economic growth which has already come at a 7-quarter low in the September quarter.

On the development, shares of the conglomerate in early trade slipped up to 3 per cent to the day's low price of Rs 462.8 per share.

In the previous day's trade, the stock ended with a positive bias at Rs 477.15 per share on the BSE.

So, should you buy, sell or hold ITC?

Singhvi said that amid expectations of a higher rate, stocks that open with a gap-down should be bought into.

In line, global brokerage Macquarie maintains an outperform call on the stock with a target of Rs 560- implying an upside of 17.4 per cent. The brokerage said that as the special rate is being proposed for cigarette ITC may be required to increase the prices to make up for the GST increase.

Additionally, it added that as of now cigarettes attract a 28 per cent GST rate and a compensation cess of 5- 36 per cent based on length of cigarette with the longest cigarette attracting a 36 per cent compensation cess and others a 5% cess.