Cigarette-maker ITC’s share price plunged as much as 15 per cent on Tuesday, wiping out nearly Rs. 60,000 crore of investor’s wealth after the GST Council increased compensation cess on cigarettes. At the day’s low, ITC shares fell to Rs. 276.90 on the Bombay Stock Exchange, which reduced its market value to Rs. 3.37 lakh crore, compared to Monday’s closing market value of Rs. 3.96 lakh crore. The fall in the ITC share price also dragged down the benchmark indices, Sensex and Nifty, lower as it has the second-highest weightage in the Nifty.
According to Bloomberg, today’s fall in ITC shares is the biggest loss in 25 years.
The GST Council on Monday raised the cess on cigarettes to take away an estimated Rs. 5,000 crore annual “windfall” manufacturers could have reaped from lower GST rates, Finance Minister Arun Jaitley said.
“In the first 15 days of GST implementation, it was noted that 28 per cent tax plus compensation cess on cigarettes, when translated, had not factored in the impact of cascading effect, resulting in windfall gains for cigarette companies,” said Mr Jaitley.
The levy on large cigarettes has been increased to 36 percent with producers being asked to pay an additional a duty of Rs. 4,170 per thousand sticks, according to a statement from the finance ministry. The previous rate was 31 per cent.
The new tax rates came into effect from Monday midnight.
Domestic brokerage Edelweiss said, the hike is likely to result in MRP increase of around 8-9 per cent.
Edelweiss has cut its volume estimates for ITC for FY18/FY19 by 5 per cent/2 per cent respectively compared to its earlier estimate of 5 per cent growth in both the years. The brokerage has downgraded the stock to “hold” from “buy” earlier.
Among others, Godfrey Phillips India plunged 10.38 per cent and VST Industries tanked 7.31 per cent on BSE.
ITC shares closed 12.63 per cent lower at Rs. 284.60 compared to 0.89 per cent decline in the broader Nifty.