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Last Updated : Jul 08, 2013 03:53 PM IST | Source: Moneycontrol.com

Cigarette price hike may boost ITC margins: Reliance Sec

Reliance Securities maintains its “Accumulate” rating on ITC with a price target of Rs 375 apiece.

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Moneycontrol Bureau

Brokerage Reliance Securities remains positive on ITC after the company hiked prices of its Gold Flake Regular cigarette brand by 2 percent (from Rs 58 to Rs 59 per 10 sticks). The broking firm believes this price hike will encourage the consumers to upgrade to its premium cigarette brands, thereby aiding volume growth.

Reliance Securities maintains its “Accumulate” rating on the stock with a price target of Rs 375 apiece.

Also Read: ITC raises price of Gold Flake brand 

“We are positive on ITC as the company has always managed to report strong cigarette margins despite increase in state as well as central excise duties on tobacco, thus displaying an ability to successfully pass on the increase in its cigarette prices. Further, the company’s non-cigarette FMCG business is on a roll recording 25-30% yoy growth for the past 2-3 quarters on increasing market share of its packaged foods business (Sunfeast and Bingo),” said the Reliance Capital’s research note to clients.

“Gold Flake Regular (69mm) is 25-30 percent volume contributor to ITC’s cigarette business and the current price of the brand is at par with its mid-premium Wills Navy Cut (74mm) cigarette brand. We estimate the cigarette business revenue to grow at 13-14 percent Y-o-Y aided by 17 percent price realization and negative volume growth of 3-4 percent. The EBIT margin for the division is expected to inch up to 33 percent depending on the extent of upgrading,” the note added.

Shares of ITC have gained 6 percent in the previous three trading sessions. At 14:25 hrs ITC was quoting at Rs 345, up Rs 3, or 1 percent.

First Published on Jul 8, 2013 02:34 pm