Moneycontrol Bureau CLSA has downgraded ITC to sell from underperform stating that the recent upmove is unwarranted given heightened risks. Maintaining a negative stance, CLSA says that there is a wave of regulations against cigarettes and ITC is at clear risk, which the market seems to be ignoring. It has set a target of Rs 315 per share. ITC is down over 1 percent intraday on Friday.
"ITC is up 18 percent from the June bottom and is back to its 5-year average of 26-times 1 year forward earnings, which we believe is unwarranted. Tobacco regulations are flawed, in our view, asthey impact cigarettes, which are only 10 percent of the industry, but the hard reality is that thesewould exert pressure on ITC. A ban on single stick sales, bigger pictorial warnings and increase in state VAT are examples of these.
Over the past four years, ITC has seen an excise duty hike at a 16 percent CAGR that has adversely impacted volumes. CLSA says that there seems to be a negative wave of regulations against the industry and while some of the policies are counter-productive, due to the availability of bidis and illicit cigarettes, the reality is that cigarettes will face the heat.
In first quarter of FY16, cigarettes revenue (which contributes 48 percent to total revenue) slipped 1.2 percent year-on-year to Rs 4,149.6 crore.
At 10:23 hrs ITC was quoting at Rs 346.05, down Rs 3.60, or 1.03 percet on the BSE.
Posted by Nasrin Sultana Follow @NasrinzStory
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