RBS: ƒ ITC – Potential positive trigger for ITC?

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ITC (ITC IN, Rs168.20, Buy) – Potential positive trigger for ITC?

The government has deferred new pictorial warnings by a year, so cigarette companies will
start production using existing warnings. Besides, the ban by the SC on sale of chewing
tobacco products in plastic sachets could have a positive impact on cigarette sales as there
is a high proportion of dual consumers.

Supreme Court bans tobacco products in plastic packs 

The Supreme Court yesterday banned the sale of tobacco products in plastic wrappers 

from 1 March, citing harm to public health and environment from the improper disposal of 

the packets. The decision also applies to 'pan masala', a non-tobacco product that has a 

similar appearance, taste and packaging. Currently chewing tobacco (or 'gutka') is sold in 

packets of Re1 each, and the ban on the use of plastic packs would make the product 

more expensive, as manufacturers would have to resort to more expensive and higherprice-point packaging. 

Dual users of chewing tobacco and cigarettes could switch to cigarettes 

We believe the proportion of dual users of chewing tobacco and cigarettes is high, and 

the ban on plastic packaging will surely impact on easy availability and prices of chewing 

tobacco based products. With cigarette consumption in India at just 15% of overall 

tobacco consumption, we believe there is potential for a structural shift in demand by 

tobacco users to cigarettes. However, at this stage it is difficult to quantify. 

Existing "cancer-infected lungs" warnings on cigarettes packs to stay for a year 

The Union Cabinet yesterday indicated that its plan to implement more harsh pictorial 

warnings on cigarettes w.e.f. December 1 2010 has been deferred by a year. This, we

believe, ends near-term uncertainty and will ensure that cigarettes companies like ITC re-start 

production. We estimate the shutdown of cigarette production over the last seven days will 

have no financial impact as ITC would have serviced the market with existing inventories