Kshitij Anand Moneycontrol News
ITC tumbled nearly 15 percent in trade on Tuesday, a day after the Goods and Services Tax (GST) Council decided to increase the cess on cigarettes.
The total market capitalisation of ITC on the BSE contracted from Rs 3,96,171.25 crore recorded on Monday to Rs 3,48.629 crore on Tuesday, which translates into a notional loss of Rs 47,542 crore at the time of publishing this story.
ITC which holds a weightage of 7.2 percent in Sensex was the biggest contributor for the declines in the index.
ITC shares which are still up 18 percent after Tuesday’s fall gained momentum after a brokerage upgraded the stock soon after GST rates were announced.
However, after the GST Council raised the cess on cigarettes on Monday, many brokerages revised their estimates on the downside.
The foreign portfolio investors (FPIs) are among the major stakeholders in ITC, followed by insurance major LIC. FPIs hold 19.99 percent stake in ITC as per shareholding data for the quarter ended June, followed by LIC which holds 16.25 percent, and financial institutions or banks which have 9.18 percent stake.
Both FPIs and LIC pared their positions slightly on a sequential basis. The last shareholding data suggests that FPIs stake in ITC at the end of March quarter stood at 20.04 percent which was higher than 19.99 percent recorded in June quarter, BSE data showed.
LIC stake in ITC stood at 16.26 percent for the quarter ended March, which was slightly higher than 16.25 percent recorded in June, showed the data.
Credit Suisse downgraded ITC to neutral from outperform and also slashed target price to Rs 310 from Rs 400 following cut in FY18-20 estimates by 10-12 percent.
Morgan Stanley, too, downgraded the stock to equal-weight from overweight and reduced target price to Rs 285 from Rs 395, saying it is a clear negative with obvious impact on volume growth and valuation multiples.
According to the research house, ITC will need 12-13 percent weighted average cigarette price hike hereon with around 20 percent price increase in KSFT segment to offset the tax increase.
However, analysts’ on D-Street are not writing an official obituary for the stock as of now. Most of them feel that the stock will continue to face pressure but after the sharp fall, many funds will line-up to buy the stock on declines. The next trigger will be the tax hikes in the next year's annual Budget.
“The long term growth potential will not get impacted for ITC. There is a lot of interest in ITC at current levels, and many funds don't have ITC and they wanted to buy after 15 percent fall on Monday,” A.K.Prabhakar, Head -Research at IDBI Capital told Moneycontrol.
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