India: ITC''s Cigarette Volumes Dip Again, Shares Hit

Source from:  NDTV 01/26/2016

ITC reported another weak quarter, weighed down by falling cigarette sales. Cigarette volume at India's biggest tobacco company dipped by 3-4 per cent in the December quarter, though the decline was lower than the 12-13 per cent fall since in the first half of FY16.

ITC's cigarette business, which contributes nearly 50 per cent to overall sales, has been hit by repeated hike in value added tax (VAT) and excise duty over the last few quarters. The company has resorted to price hikes to sustain margins, which has also impacted volumes.

In the December quarter, ITC's cigarette sales registered a revenue growth of nearly 6 per cent to Rs 4,380 crore, mainly on account of price increase.

Overall, the cigarette-FMCG-hospitality firm reported a net profit of 2,653 crore on sales of 9,103 crore.

ITC's FMCG business grew by 7 per cent at Rs 2,478 crore. ITC, which runs India's second largest hotel chain, reported a 4.5 per cent jump in revenue from the hospitality segment at Rs 345 crore. However, profit from this segment declined due to pricing pressure.

Paper and packaging business was the only bright spot in ITC's Q3, profit before tax from this segment rose 13 per cent annually to Rs 241 crore and revenue from this segment increased 5 per cent to Rs 1,260 crore.

Domestic brokerage Kotak upgraded ITC to "buy" citing attractive valuation and stabilisation in cigarette volume. It has a target price of Rs 370 on the stock, indicating a potential upside of 20 per cent from Friday's closing price. "At 22 times FY17 estimated earnings per share, ITC stocks valued attractively," Kotak said.

Religare has a "hold" call on ITC with a target price of Rs 330. Valuations are fair but the stock lacks near-term triggers until the upcoming Budget, the brokerage said.

ITC shares closed 0.21 per cent higher at Rs 309.40 apiece compared to 0.18 per cent gain in the broader Nifty. Enditem