ITC Shares Drop After India Increases Cigarette Tax

March 3 (Bloomberg) -- ITC Ltd., India's biggest tobacco company, fell the most in three weeks in Bombay trading after the government increased cigarette taxes.

March 3 (Bloomberg) -- ITC Ltd., India's biggest tobacco company, fell the most in three weeks in Bombay trading after the government increased cigarette taxes. India's Finance Minister Palaniappan Chidambaram on Feb. 29 raised the excise tax on non-filter Cigarettes to the same level as the filter-tipped variety. The overall-weighted duty increase for ITC is equivalent to about 16 percent, Citigroup Inc. said. The increase is ``steeper than expected,'' Citigroup analysts Princy Singh and Pragati Khadse said in a note to clients dated Feb. 29. ``Price hikes are likely to have an adverse impact on cigarette volumes.'' Non-filter Cigarettes account for 20 percent of ITC's sales and less than 10 percent of profit, the analysts said. Shares of Kolkata-based ITC fell 8.05 rupees, or 4 percent, to 194.10 rupees as of 12:31 p.m. local time on the Bombay Stock Exchange, heading for their biggest one-day decline since Feb. 11. ITC'S stock rating was cut to ``neutral'' from ``buy'' by UBS AG and the price target was Reduced to 235 rupees from 280 rupees. Morgan Stanley cut its rating to ``underweight'' from ``equal weight.'' UBS forecasts cigarette volumes will decline 2.5 percent in the year ending March 31, 2009, from the earlier estimated gain of 4 percent. By Saikat Chatterjee To contact the reporters on this story: Saikat Chatterjee in New Delhi at schatterjee4@bloomberg.net .

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