ITC hits 3-month high; stock gains 9% in one month

The stock was up 2% at Rs 295, its highest level since October 4, 2018.

Shares of ITC hit a three-month high of Rs 295 apiece, up 2 per cent on the BSE in an otherwise range-bound market on Friday.

The stock of fast moving consumer goods (FMCG) was trading at its highest level since October 4, 2018. In past one month, ITC outperformed the market by gaining 9 per cent, as compared to a 3 per cent rise in the S&P BSE Sensex.

The cess at 1 per cent calamity cess to fund the rehabilitation work in Kerala is moderate and lower than fears. It is, thus, a small positive for ITC. There has been no GST hike on cigarettes since July 2017, which has led to some stability on volumes and there were fears that the Kerala cess would be the first opportunity to increase rates sharply, Motilal Oswal Securities said in sector update.

“ITC trades at around 40 per cent discount to consumer universe given investor’s fears of frequent increase in Goods and Services Taxes (GST) rates on cigarettes post 20 per cent increase under excise and introduction of GST. Compensation cess collections has already exceeded the budgeted thereby removing the urgency to increase taxes on cigarettes in near term”, analysts at Prabhudas Lilladher said.

Cigarette volumes are gradually recovering on stabilization of sales mix and cigarette prices, stable taxation regime and low base post 17 per cent volume erosion in 5 years. We expect 3 per cent volume growth in FY18-20. FMCG profits are expected to increase by 2-3x in coming few years given scaled up foods business, peaked out losses in lifestyle retailing, the brokerage firms said in December quarter earnings preview.

“We estimate 11.2 per cent profit after tax growth on 5 per cent growth in cigarette volumes and improved profitability in FMCG and Hotels. Cigarette margins are expected to improve marginally on benefit of price increase taken in Q2 in RST filters,” it added.

The brokerage firm JM Financial expects ITC to report 5 per cent growth in cigarette volumes (easy base) and the growth in its cigarette EBIT to be in double-digit (+11.7 per cent) for the first time in the past 11 quarters.

A ministerial panel under the GST Council on 6th January approved Kerala’s request to levy an additional 1 per cent calamity cess to fund the rehabilitation work in the state which was battered by unprecedented floods a few months ago.

At 10:36 am; ITC was trading 1.3 per cent higher at Rs 293 on the BSE, as compared to 0.07 per cent decline in the S&P BSE Sensex. A combined 4.7 million equity shares changed hands on the counter on the BSE and NSE so far.