On Monday, 3rd February 2020, the ITC share price had touched an intraday and a new 52-week low (Rs 205). The ITC share price fell 6.33% against the last close of Rs 218.85. The price fall has been because of the 'Cigarettes/Tobacco' sector that fell by 4.48% on the BSE.
In the last two years, the ITC stock has underperformed despite the suggestions of the analysts that the ITC share price will remain bullish. The stock has dropped to a four year low and the PE valuations of the ITC stock have reduced to the 2004 levels.
Although the tax hike has been the recent most trigger, it doesn't seem that taxation is the only point of stress for the ITC. Tax rates on cigarettes have been mostly stable for the last two years. Besides, the e-cigarettes have been banned in India. But this did not stop the ITC share price from sliding 43 percent since it recorded a high of Rs 367 in the year 2017. In comparison to that, the stocks of the rivals of ITC including Godfrey Philips and VST have had an increment of 26 percent in the last two years.
According to a report, the S&P 500 Tobacco Index is currently trading at a 28 percent discount to the S&P 500 Index on a 12-month forward PE basis. This discount has stayed starting from the first half of 2018. At the same time, the increasing regulatory challenges in the United States include the ban on e-cigarettes by FDI as well as the rise in the minimum age to buy tobacco products from the age of 18 years to 21 years.
The investors that have been waiting for the perfect time and environment for their cigarette businesses may end up getting disillusioned. The global smoking prevalence rate, as per a report had reduced more than one percent every year over the last decade. It is defined as the percentage of adult smokers. It has also been reported that tobacco sales worldwide have been estimated to increase less than one percent every year through 2022 which is a notable fall from the 2.3 percent annual growth that has been witnessed since the year 2008.
Unlike its competitors, even after the CEO changed at ITC there has still not been a positive impact on the returns of the shareholders. The ITC share price has lost one-fourth of the value since Mr. SanjivPuri was appointed as the CEO of ITC in February 2017.
The cheap valuations have become cheaper and it is unlikely that the Street will turn bullish for ITC as of now. There are low expectations for the growth of the cigarette business due to the tax levies as well as a curb on smoking. Also, it will take some years for the other non-cigarette businesses of ITC to grow and contribute to the company in a meaningful way.
Currently, there are no positive triggers they should be watchful about unless ITC makes a proposal to demerge their cigarette business or plan to acquire any of its competitors in the cigarette business.
ITC had been incorporated on August 24, 1910. It had been named as Imperial Tobacco Company of India Ltd. With the ownership of the company getting Indianised, the company name was changed from the Imperial Tobacco Company of India Ltd to India Tobacco Company Ltd in 1970 and then to I.T.C. Ltd in the year 1974.
Picture Source: Marketing91