ITC Hikes Cigarette Prices By 7-8% To Offset Higher Cess, Says Macquarie
ITC hikes cigarette prices to counter additional cess post GST.
ITC Ltd. has hiked prices of cigarettes after the additional cess under the Goods and Services Tax was increased to ensure that the effective levy does not come down under the new indirect tax regime, according to a research note by broking firm Macquarie.
Macquarie’s channel checks indicate a weighted average price hike of 7 percent to 8 percent. The GST council had announced an additional cess on cigarettes depending on the length on July 17 after brokerages CLSA and ICICI Direct said that the levy was around 8 percent lower than earlier.
While the price hike will help ITC maintain its realisation per stick, we believe it will put pressure on the volume.Macquarie Research Note
Macquarie maintains ‘outperform’ rating with a target of Rs 340 for ITC shares, reflecting a potential upside of nearly 16 percent from the current prices.
The firm’s channel checks indicate 7 percent increase in 84 millimetre segment, which includes brands like Gold Flake Kings and Classic. In financial analysis, a channel check is a third-party research on a company's business based on collecting information from the distribution channels.
The Gold Flake franchise’s prices rose 6 to 11 percent in the 69 millimetre segment, while brand Bristol was costlier by about 20 percent. Capstan saw prices remain unchanged.
While volumes may be impacted, Macquarie is not building in a decline in volumes for 2017-18 as the prices will rise in phases as the economy improves.
Shares of ITC were trading 1.35 percent higher at Rs 292.80 on the National Stock Exchange at 2.51 p.m.
