Credit Suisse bullish on ITC, free cash flow jumps in FY16

Moneycontrol Bureau Credit Suisse has maintained outperform rating on ITC. Analysing ITC's annual report, it says that cigarette excise duty paid by ITC in FY16 saw an increase of 9 percent, compared to flat growth in FY15. This was partially due to the effective hike in the first four months of the year being 35 percent YoY, as the tax hike in FY15 became effective only after July.

As per Credit Suisse estimates ITC’s volume decline was 7 percent in FY16 which implies average price growth of 14 percent (year-on-year) in the fiscal. It adds that gross sales for cigarettes grew 6 percent (YoY) higher than the 4 percent net sales growth, indicating that ITC did not fully pass on the percentage hike in excise duty during the year.

The brokerage says that Indian Accounting Standards (IND-AS) will impact its FY16 earnings per share (EPS) by 5 percent as employee stock ownership plan (ESOP) accounting shifts from intrinsic value to fair value method.

According to the annual report, there would have been Rs 510 crore additional cost in FY16 and adjusted EPS would have been 5 percent lower.