ITC Shares Fall amid Reports of Tough Tobacco Policy

ITC shares fell nearly 2 per cent on Wednesday pulling down the broader Sensex and Nifty. ITC is the most influential stock in the 50-share Nifty index. The stock was also the top Nifty loser.

Reasons for the fall: According to media reports, an expert government panel has proposed,

1) Ban on sale of loose cigarettes, which account for 70-75 per cent of industry volumes in the country. Ban on loose cigarettes can dent ITC's volumes by 8-10 per cent, analysts say.

2) The panel has also recommended raising the penalty for smoking in public space to Rs 20,000 from current Rs 200. It has recommended increasing the legal age of smoking to 25 years from 18 years currently.

3) The panel has also recommended increasing space for pictorial warning on cigarette packets to 80 per cent from current 40 per cent.

The government might move amendments to the Cigarettes & Other Tobacco Products Act 2003 in the Winter Session of Parliament to incorporate some of these changes, the report added. A company spokesman was not immediately reachable for comments.

Experts' take on ITC: Most analysts remain bullish on ITC, which is India's biggest cigarette maker. ITC has 37 buy ratings, 2 hold and one sell rating, Thomson Reuters data shows.

Sagarika Mukherjee, Research Analyst at SBICAP Securities told NDTV on Tuesday that ITC is highly undervalued as it is trading at some 20-23 times its FY16 earnings estimate. The FMCG sector, in contrast, is trading at over 30 times its FY16 earnings estimate.

Cigarette price hike is unlikely to impact sales as most consumers in the segment are brand loyal and their demand is inelastic, she added.

As of 12.10 p.m., ITC shares traded 1.74 per cent lower at Rs 351.95 and underperformed a 0.5 per cent drop in the broader Nifty.