Shares of ITC, Varun Beverages fall 5% on possible GST rate hike to 35% – News18

Shares of ITC Ltd, Varun Beverages Ltd, VST Industries Ltd, and other cigarette and beverage companies fell by up to 5%.

Shares of ITC, Varun Beverages fell as much as 5 percent

Shares of ITC Limited, Varun Beverages Limited, VST Industries Limited, and other related companies A cigarette And beverages fell as much as 5% on Tuesday, December 3, following reports of possible revisions in GST rates across several categories.

Varun Beverages saw its stock fall 5% to Rs 600 in intraday trading, with heavy volume. Shares of ITC also fell 3 percent to Rs 462.80. Both ITC and Varun Beverages have experienced a correction of up to 12% from their record highs of Rs 528.55 and Rs 682.84, reached on September 27, 2024 and July 29, respectively.

In the last three years, ITC’s stock price has increased by 110%, while Varun Beverages has seen an impressive 424% increase. In comparison, the BSE Sensex has climbed 39% during the same period.

Varun Beverages is a major player in the beverage industry and one of the largest franchisees of PepsiCo globally (outside the USA). The company manufactures and distributes a wide range of carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including packaged drinking water, all under the PepsiCo trademark.

PepsiCo’s CSD brands manufactured and sold by Varun Beverages include Pepsi, Pepsi Black, Mountain Dew, Sting, Seven Up, Merinda, Seven Up Nimbo’s Masala Soda, and Ever Weiss. NCB’s brands include Slice, Tropicana Juices (100% and Delight), Seven Up Nimbus, Gatorade, and Aquafina packaged drinking water.

ITC’s recent performance is largely due to the improved growth outlook, which is attributed to the stable taxation system post GST implementation. Reinforced.

In its FY24 annual report, ITC highlighted that taxes on cigarettes in India are significantly higher than in developed countries—14 times that of the US, 7 times that of Japan, and 6 times that of Germany. These taxes are also much higher than the taxes of neighboring countries.

The ITC pointed out that large tax increases have historically hurt tax collections and the legal volume of cigarettes. Conversely, a stable tax system has led to better tax revenue. The company also estimated that the illegal cigarette trade costs the government around Rs 21,000 crore annually. Additionally, the illegal cigarette trade negatively impacts farmers and those working in the tobacco value chain.

Media reports suggest that the Group of Ministers (GoM) on rationalizing GST rates has increased the tax rate on aerated drinks, cigarettes, tobacco and related ‘sin’ products to 35% from the current 28%. percentage is recommended.

The proposal specifically proposes a new 35% GST rate slab for tobacco and related products, as suggested by the GoM.

However, higher taxes on cigarettes are expected to significantly reduce the volume of cigarettes, as consumers become more price sensitive, which may result in lower sales. Additionally, consumers may shift to lower priced counterfeit products.

“Over the years, discriminatory and punitive taxes on cigarettes have promoted the migration of tobacco products from duty-paying cigarettes to other lightly taxed or tax-evading products, including illicit cigarettes, , including chewing tobacco, gutka, snuff, etc.,” ITC stated in its FY24 annual. Report

What happened in the last GST meeting?

On July 23, Finance Minister Nirmala Sitharaman announced no change in sin tax in the 2024-25 Union Budget, leading to a rise in the stock prices of ITC and other tobacco companies. A stable tax system was seen as positive for the cigarette business, and Jeffries noted that unchanged tobacco taxes provided relief to the ITC. The last increase in tobacco tax was 2% in February 2023. This consolidation allowed ITC to focus on volume growth with minimal price increases.

However, the GoM’s proposal came as a surprise to market participants. After ITC’s latest earnings report, brokerages expected the company to report mid-single-digit cigarette volume growth in FY25. The GoM’s recommendations will now be discussed in the GST Council headed by the Finance Minister and his state counterparts on December 21.