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The ITC stock moved up by about 6 per cent on last Monday. The trigger was the reduction in tax incidence for cigarettes under GST, which was implemented from July 1. Under GST, cigarettes attract a tax of 28 per cent, a cess of 5 per cent and an additional cess based on the length of the cigarette. Although the overall tax rate is the same as earlier levels, tax incidence on cigarettes is expected to be about 5 per cent lower now, as the cascading effect of taxes is eliminated. This should translate into lower prices and higher volumes. ITC is the market leader in the legal cigarette industry. The company derives about 80 per cent of its pre-tax profits from cigarettes.
Besides, the company is betting big on its FMCG business with several launches lined-up. So another reason for the rise in stock price is ITC’s discounted valuation (39 times trailing earnings) compared to other leading FMCG players (over 50 times).
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