Nomura cautious on ITC cigarette biz growth, sees FY17 vol boost

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Nomura is cautious that cigarette business growth concerns will continue to bother ITC. The brokerage firm has a neutral rating on ITC with a target price of Rs 316 per share as long-term outlook remains negative.

However, Nomura also expects that ITC's pricing strategy may boost volumes in FY17. It says that ITC has only increased prices by 13 percent at the premium end of its portfolio translating into a weighted average price hike of 7.6 percent the lowest in four years due to excise duty hikes. "This makes us optimistic of a boost in volumes for the company this year, after a constant decline over the past two years. We however, do expect the company to take increase prices in FY17 as well," it says in a report.

In March quarter, prices of Kings segment (over 10 percent of portfolio) were raised by about 14 percent and lengths of brands like Berkeley and Flake Filter (5 percent of portfolio) were cut to 64mm from 69mm at unchanged prices.

According to Euromonitor, although global tobacco trends indicate volume declines India suffered largest decline in 2015. Cigarette volumes declined 8.2 percent on annual basis to 8800 crore sticks in 2015 in India, accounting for 1.6 percent of total world volumes. This 8.2 percent decline is the biggest year-on-year decline in the last 15 years, even though volumes have been declining since 2011, says Euromonitor. Because of which, value growth for the cigarette industry in India for 2015 is a dismal 1.9 percent compared to a five year average of 10.3 percent indicating that the industry may be in structural decline.

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Nasrin Sultana

Special Correspondent|Moneycontrol.com

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Nomura further adds that apart from previous consecutive excise duty increases and potential of greater excise duty hikes in the future, larger pictorial warnings on packs and a ban on the sale of loose cigarettes in certain states are further challenges that ITC is facing currently.

Its cigarette revenue in Q4 jumped 10.2 percent at Rs 4639 crore from Rs 4211 crore while EBIT also increased 11.5 percent at Rs 3019 crore against Rs 2706 crore (YoY). Cigarette EBIT margin was at 65.1 percent compared to 64.3 percent (YoY) while hotels revenue grew 4.8 percent at Rs 363 crore versus Rs 346.4 crore (YoY).

The company had said that FMCG-cigarettes segment continued to be impacted by severe pressure on legal cigarette industry volumes even as illegal trade grows unabated.

Cigarette business performance in March quarter FY16 (which contributes 43 percent to total revenue) was the best in 11 quarters.

At 10:15 hrs ITC was quoting at Rs 356.50, down Rs 1.80, or 0.50 percent on the BSE.

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