Even as the shares of tobacco majors Godfrey Phillips and VST Industries have been struggling near their 52-week lows, the stock of FMCG major ITC has been on a roll at the bourses. ITC hit a 52-week high of Rs 317.45 on Monday before settling at Rs 316.9, still a gain of 0.5 per cent over Thursday’s closing price.
According to analysts, ITC was able to increase the price after the Budget, which hiked the excise duty on cigarettes by about 18 per cent except for cigarettes not exceeding 65-mm in length. ITC recently increased the price by15-20 per cent across almost all categories.
On Monday, Godfrey Phillips India closed 0.6 per cent lower at Rs 2,460, as against its 52-week low price of Rs 2,250 touched on Thursday. VST Industries, which managed to close 1.55 per cent higher at Rs 1,526.30, hit a 52-week low of Rs 1,480.5 last Monday.
The company also released its quarterly results for the fourth quarter ended March on Thursday posting a 5.41 per cent fall in net profit at Rs 34.74 crore against Rs 36.73 crore reported in the year-ago period. According to analysts, ITC’s pricing power is giving the stock an edge over its peers, which are likely to hit more by the taxes.
A report by Motilal Oswal Financial Services on ITC said: “In FY13, ITC has passed on the 21-per cent excise duty increase with 15 per cent plus price hike till date. In first nine months of FY13, ITC’s cigarette volumes have remained flat despite the significant price hikes.”
The report added: “ITC has been expanding its portfolio and geographical distribution in the 64-mm segment, which was introduced in the FY13 Budget at 40 per cent lower excise duty compared to the 69-mm segment. This has helped ITC gain share from VST Industries and Godfrey Phillips. We expect ITC’s and its competitors’ focus to increase in this segment, as the FY14 Budget has left excise unchanged for the under 65-mm segment.”.
Several brokerage houses continue to be bullish on ITC’s stock prospects setting a target price of Rs 330-340 for FY14 on higher earnings visibility and scope of improving profitability in the non-cigarette FMCG business that could augment their cash flows and payout ratios.
Kaustubh Pawaskar of Sharehkhan said: “Even though these recent price hikes by the company might result in flattening volumes, overall revenue growth would be in double digits because of higher price realisations. So, from long term perspective too, the stock is a strong bet for FY14 given the strong balance sheets and cash flows.”
manisha.jha@thehindu.co.in