Monday, 24 July 2017

ITC gains 2% on price hike of Gold Flake Kings, Classic Rich, Navy Cut cigarettes

ITC hiked Gold Flake Kings and Classic Rich prices to Rs 300 per 20 pack each while Navy Cut Filter price increased to Rs 188 per 20 pack.

INTRADAY TRADING TIPSITC shares gained as much as 2.4 percent in morning trade Monday as the cigarette major hiked select product prices following GST Council hiked cess to pre-GST level.

The company increased cigarette prices of its three brands effective July 18, reports CNBC-TV18 quoting sources of Cogencis.

It hiked Gold Flake Kings and Classic Rich prices to Rs 300 per 20 pack each while Navy Cut Filter price increased to Rs 188 per 20 pack.

Macquarie also said based on its channel checks with several distributors, ITC has taken price hikes to compensate for higher cess in the GST regime.

According to the brokerage firm, the 84mm segment (Gold Flake Kings and Classic) price increase is of 7 percent to Rs 15 per stick. In 69mm segment, the price increase in Gold Flake franchise is 6-11 percent. In the 64mm segment, the price increase in Gold Flake Superstar and Gold Flake Century is around 9 percent. For other 64mm brands, while Bristol saw price increase of 20 percent (to Rs 6/stick), Capstan saw no price increase.

The price hike is taken across significant part of the portfolio keeping the coinage factor and competitive intensity in mind, it said. FREE INTRADAY STOCK TIPS

The weighted average price hike is around 7-8 percent, which the research believes will compensate for increase in cess.

"While, the price hike will help ITC to maintain its realisation per stick, we believe it will put pressure on the volume," Macquarie said.

It further said, "We are not building significant decline in FY18 as we believe phased price increase will not lead to similar impact as against price increase at one go. Also, we believe a rural recovery in second half of FY18 will help compensate the impact of price hike. Lastly, we expect volume growth in Q118 (based on channel checks) which will help offset volume decline in few quarters."

Macquarie believes the stock will underperform in the near term on a lower earnings growth trajectory and valuation discount, though it has retained outperform rating on the stock with target price of Rs 340.

Morgan Stanley reiterated its equal-weight rating on the stock and believes that the next catalyst for the stock will likely be the Union Budget (February 2018) and the tobacco tax policy therein.

The stock price lost 13 percent on last Tuesday, especially after the GST Council, on July 17, reviewed the compensation cess rates in cigarettes and raised tax by 10-14 percent for all cigarette lengths other than the King Size (KSFT) segment wherein the tax increase is around 23 percent.

At 10:00 hours IST, the stock price was quoting at Rs 293.45, up Rs 4.95, or 1.72 percent on the BSE.
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