Brokerage house CLSA has reversed its stock rating on ITC to ‘Buy' from ‘Underperform' on modest earnings outlook.
Shares of the tobacco maker have corrected sharply from recent peaks owing to unexpected increases in tobacco taxes post-Goods and Services Tax rollout, CLSA said in a report.
The broking firm forecast about 2.5 percent volume drop on a year-on-year basis in the current financial year, with modest 6.5 percent YoY cigarette earnings before interest and tax growth – the third consecutive year of mid-single-digit growth.
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For Q1FY18, we build in a 7 percent YoY decline in volume but expect an improvement through the course of the year, as the base becomes low and consumers adjust to the new prices.CLSA Research Report
Also Read: Morgan Stanley Expects Steady Cigarette Tax Policy; Upgrades ITC
Further cess hike in the event of weak GST collections, other regulations aimed at curbing tobacco consumption, or a volume drop that's sharper than our forecasts are the key risks, CLSA said.
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