Hold ITC; target of Rs 387: ICICIdirect

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ICICIdirect.com's report on ITC "In Union Budget 2015-16, excise duty was increased 25% in below 65 mm cigarettes category & 15% in above 65 mm category. This would be the fourth consecutive year of aggressive excise hike on cigarettes. Over the years, ITC has passed on excise hikes by persistent price increases. According to our estimates, ITC has taken 18% CAGR price hike in the last three years, resulting in a volume decline of ~4% in FY14 & ~8% in 9MFY15. We expect the company to continue to pass on the excise hike through price increase, which would further aggravate volume dip in FY16E. We expect average price hike of 17% in FY16E & 10% in FY17E with volume de-growth of 7.5% in FY16E & 5% in FY17E. We believe regulatory restrictions would continue to remain an overhang on revenue growth. We expect 9.8% CAGR in revenues & 8.1% CAGR in earnings in FY14-17E. We maintain our target of Rs 387 per share with HOLD rating."

"Led by near term concerns over cigarette volume growth due to the unprecedented fourth consecutive year of excise hike, we have maintained a cautious stand in the last four quarters. We value the stock on an SOTP basis and maintain our target price of Rs 387/share. We assign a HOLD rating to the stock", says ICICIdirect.com research report.

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