Tax Reforms and a Diversified Portfolio to Support

ITC

's Growth

, a leading cigarette player has experienced volatility following recent GST Council discussions. While the proposed changes, including a new 40% GST rate, have raised investor concerns, a closer look suggests the overall tax burden on cigarettes is unlikely to increase, and other business segments will drive long-term growth. → GST Revisions and Tax Impact: The proposed 40% GST on cigarettes (up from 28%) and the removal of the compensation cess have caused market uncertainty. However, the compensation cess will likely be replaced by other duties, ensuring the overall tax incidence on cigarettes remains unchanged. A key proposed reform is to tax cigarettes based on their Maximum Retail Price (MRP) rather than the inter-business transaction price. This change aims to simplify the tax structure, curb tax evasion in the unorganized sector, and improve tax compliance and revenue for the government. → Diversified Portfolio and Growth Levers: The stock's long-term potential lies in ITC's diversified portfolio, which includes FMCG, agri, and paper businesses. Proposed GST cuts for other key FMCG categories from 12% to 5% are expected to boost volume growth in this segment. The changes in cigarette taxation are anticipated to stabilize pricing, reduce illicit trade, and strengthen ITC's competitive position as the largest cigarette manufacturer. → Valuation and Outlook: Despite the recent volatility, the stock is trading below its 10-year average P/E, making it an attractive level for accumulation. The company's well-diversified portfolio and strong market positions across various segments make it a compelling long-term investment. While the timeline for the new tax structure is unclear, the base case remains that the overall tax burden on the cigarette business will be neutral.