ITCstck decline before Q1 results

The ITC scrip fell 2.35 per cent to Rs 303.95 a share on the BSE on Wednesday, on concerns that the company might post another steep fall in cigarette volumes in the April-June period. Punitive tax has been raised on cigarette by up to 25 per cent. This could lead to weakness in earnings, as 40 per cent of revenues and 85 per cent of profit come from cigarettes. Cigarette volumes had declined 13 per cent in the fourth quarter of FY15, 14 per cent in the third quarter, five per cent in the second and 2.5 per cent in the first. Kotak Securities have pegged the net sales of ITC at Rs 8,617 crore, down seven per cent from the year-ago period.

“India’s total cigarette volume consumption has remained unchanged in FY12-14. However, a 15 per cent excise hike CAGR (compounded annual growth rate) over FY13-16 and poor implementation of anti-cigarette regulations have resulted in a consumption shift from legal to illegal cigarettes, bidis and chewing tobacco,” said Rakshit Ranjan of Ambit Securities.

The company has decided to mitigate the hike in excise dutyby effecting an increase of 15 per cent across cigarettes of various lengths. A10-stick packet of Gold Flake premium, priced at Rs 69, is being sold for Rs 75here. Similarly, smokers are paying Rs 100 a 10-stick pack of Classic, while theMRP is Rs 95. Gold Flake Superstar is being charged at Rs 40 for a pack of 10cigarettes.

The company has also cut its cigarette sticks in the Bristol brand to be inthe sub-65 mm bracket.Challenging FY15 as the Volume growth, Sales andEBIT growth were lowest since 2005; Excise and VAT increase of 98-104 percentin the past three years has increased share of illegal cigarettes to 20 percent.

Lack of clarity on stringent pictorial warnings and subsumation of local taxesin GST remain the sore areas. FY16 volume decline to accelerate, given 50percent increase in cigarette prices in the past three years. The scrip closed on Wednesday at Rs 303.95, down by almost 2.35percent.