ITC raises cigarette prices after VAT hike in states ::Angel Broking,

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ITC raises cigarette prices after VAT hike in states
ITC has increased the price of its mid-size brands Wills Navy Cut. This price hike comes
after the recent increase in VAT on cigarettes in Andhra Pradesh from 14.5% to 20%. The
company had recently taken a price hike in its premium brand Wills Classic owning to VAT
rate on cigarettes hike in Tamil Nadu from 12.5% to 20%. West Bengal, where the effective
rate is 30% now, also includes cigarettes as per Schedule D of VAT brackets.
The prices of the brands now stand as follows:
Brand Size Old Price New Price
Classic Pack of 10 84 mm `50 `55
Classic Pack of 20 84 mm `100 `110
Gold Flake Kings Pack of 10 84 mm `48 Unchanged
Gold Flake Kings Pack of 20 84 mm `96 Unchanged
Wills Navy Cut 69 mm `40 `44
Gold Flake Regular Pack of 10 69 mm `38 Unchanged
In the past, ITC has shown resilience to such events. We expect the impact of price hikes to
be minimal on the company’s earnings. We expect ITC to record ~6% volume growth in
cigarettes in FY2012. At the CMP, the stock is trading at 21.6x FY2013E EPS. We maintain
our Accumulate view with a target price of `205, based on our SOTP valuation.