Analysts' corner

ITC
Reco price: Rs 225;
Target price: Rs 255
The government has reversed its stance to increase basic excise duty on cigarettes over 65mm length by charging a 10 per cent ad valorem excise duty to the existing specific rates. Now, the weighted average excise increase for ITC’s portfolio would work out to 22 per cent. Analysts believe doing away with MRP-based taxation is a positive for ITC as it provides better pricing flexibility and margin upside potential. For FY13, ITC would require a 11-12 per cent weighted average price increase. Citigroup forecasts moderate Ebitda margin expansion (185 basis points y-o-y) in FY13 driven by higher pricing. Analysts expect volumes decline of three per cent in FY13 on the high base of FY12. Citi has increased its EPS estimates by one to four per cent over FY13-14. Maintain buy.

Citigroup

CESC
Reco price: Rs 262;
Target price: Rs 434
CESC reported Q4’FY12 net profit of Rs 270 crore, much ahead of analysts/consensus expectations. The recent tariff hike and higher-than-expected other/non-operating income helped the company post superior profit. Analysts expect cash flows to be strained due to higher outgo towards 1.2GW expansion projects and Spencers’ losses/capex. Analysts expect this to impact sentiment. Edelweiss has revised its FY13 net profit estimates by 46 per cent due to revised tariff norms and higher efficiency. Further, pipeline projects of Haldia and Chandrapur/Dhariwal, which are on track, will help CESC post growth, going forward. Clarity on FDI in multi-brand retail will be key trigger to unlock value from this investment. Maintain buy.

Edelweiss Securities