A day after cigarettes to consumer goods company ITC’s scrip was sold heavily on news of the Government accepting the Health Ministry recommendation on banning loose cigarettes, the stock recouped to close over 2 per cent on the bourses.
It closed on Wednesday at ₹363.4 on the NSE, up 2.25 per cent. Over 1 crore shares were traded with a delivery percentage of 70.2.
Motilal Oswal Financial Services in a report observed that the track record of authorities in implementing the ban on gutka, chewing tobacco and smoking in public places, has been patchy.
If the recommendations are implemented, it is clearly a sentiment negative from the stock’s short-term performance.
In India, about 73 per cent of the cigarettes are sold in loose format. While ITC can adopt counter measures, the recommendations, if implemented, can hurt cigarette volume in the interim, as the entry of new consumers, who typically start with single cigarette, can be impacted, the brokerage observed while reiterating its buy call on ITC.
Advising clients to add ITC to their portfolio, Kotak Institutional Equities observed that “effective implementation of regulations like ban on loose cigarettes can have a knee-jerk impact on ITC’s cigarette volumes. However, the same is impossible to predict. While regulatory hurdles and punitive taxation and its impact on ITC’s volume growth have been a perennial concern, a significant part of this ‘uncertainty-led-discount’ is already baked in ITC’s valuation multiples.”
JM Financial in a report said: “It is, in fact, the retailers who currently sell cigarettes in loose form to the end-consumers and, hence, compliance will need to be ensured at retailers’ end. This could prove to be a difficult task, given the widespread retail landscape of the country,” the report added.