Morgan Stanley Expects Steady Cigarette Tax Policy; Upgrades ITC
Here’s why Morgan Stanley upgraded ITC-the worst performing stock in their coverage.
Morgan Stanley upgraded ITC Ltd. to 'overweight' on the hope that cigarette tax policy will become steady even as the stock remains one of the worst performers among the companies the brokerage covers.
It increased the target price to Rs 320 from Rs 285, with an upside potential of 22 percent. The cigarette maker has the best risk-reward in consumer staples, it said.
ITC shares came under pressure after the government hiked total levy on cigarettes under the Goods and Services Tax. The move followed after multiple brokerages pointed out that cigarette prices may fall under GST as total taxes had come down.
After GST, illicit cigarette trade has increased which is a challenge, Morgan Stanley said.
Three Catalysts To ITC’s Performance
- Cigarette volume growth.
- Operating margin expansion led by cost efficiency under GST.
- The trend in GST cess collection.
Morgan Stanley suggests that investors looking for a steady return should make a call only after the annual review of GST cess collected by the government. It forecasts a 2 percent volume decline in cigarettes.
