The Hindu Business Line : Tobacco stocks up on SC ruling

STOCK price of cigarette and gutkas manufacturers gained sharply after the Supreme Court (SC) today ruled that States had no power to enact a law to impose luxury tax on these products.

States such as Uttar Pradesh, West Bengal, Haryana and Andhra Pradesh had imposed luxury tax on cigarettes and gutkas.

As the news of the apex court ruling came within 45 minutes of opening of the market, stocks of cigarette companies, led by ITC, started moving up.

The major action was seen in the ITC stock, which gained 11.08 per cent to close at Rs 1,378.45 on the BSE.

In absolute terms, the stock gained Rs 137.55 on the BSE, the highest gain by the stock in the recent past.

Other cigarette companies such as VST Industries (up 3.64 per cent at Rs 256 on the BSE), Godfrey Phillips (up 6.84 per cent at Rs 588.90) and GTC Industries (up 17.89 per cent at Rs 29) also gained. Kothari Products, which makes gutaka and pan masala, gained 3.27 per cent at Rs 281.

Brokers and analysts said the ruling would have positive benefits to all the companies. However, they said the biggest beneficiary would be ITC, which holds a major market share.

On the Supreme Court ruling and its impact on ITC, investment bank Merrill Lynch said: "We estimate ITC's profit to increase 20 per cent per annum on a recurring basis on the back of non-payment of luxury and entry taxes in future.

"We estimate ITC pays 6.2 per cent of gross cigarette turnover as luxury and entry taxes. Excluding 35 per cent tax outgo on this, the balance adds 20 per cent to ITC's profits every year".

It said no luxury taxes in future imply earnings upside on a recurring basis and the cigarette business is benefiting from strong volume growth.

However, Merrill Lynch said it was awaiting clarity on whether the SC had disallowed only luxury taxes or disallowed both luxury taxes and entry taxes.

"We estimate entry taxes would amount to almost half of the total provision of Rs 1,570 crore made on this account. We also need to know whether the SC ruling is with prospective or retrospective effect.

"Even if the ruling is with a prospective effect, we estimate there is upside to ITC's future profits."

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
HDFC Mutual plans multi cap fund

Bears prevail

Tobacco stocks up on SC ruling

BOC India up on growth potential

Futures trading in cocoons, raw silk launched

SEBI mulls altering takeover code

Select large-cap stocks recover after a bad start

HBL Nife EGM for rights issue