British American Tobacco exposed to regulatory tax hikes

13 days ago

Khloe Mele

"Okay. And we're looking to at British American Tobacco this morning. Could a new excise duty on cigarettes affect their fortunes this year? Yeah, VAT has taken quite a bit of a hit this morning because of its stake in ITC which is itself taking a big hit. So ITC is India's largest maker of cigarettes and the shares plunged quite, quite impressively, quite massively after the government decided to impose a new duty on cigarettes. Um and that new duty would result in a tax hike of over 30% and the reason why the market reaction was so harsh is because that tax burden is much higher than anticipated and ITC is very vulnerable to it. It gets over 40% of its revenue from cigarettes. So this new tax would mean a really big hit on volumes, big hit on earnings of course um and it could lead to a hike in prices of at least 15% uh to kind of pass on that impact to consumers. And because BAT is ITC's largest shareholder, we've got a stake of about 23% um it means that BAT is quite exposed to the fortunes of ITC and we're seeing that reflected in in some weakness in those shares this morning."

The analysis points out that British American Tobacco is feeling the impact of a new excise duty on cigarettes, which has severely affected ITC, its major investment. The tax hike of over 30% is expected to pressure cigarette volumes and earnings, thereby negatively impacting BAT due to its sizeable stake in ITC.

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