Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
West Bengal State Budget has raised VAT on tobacco products (including cigarettes) to 20%
from 13.5%. The state would account for 7-9% to ITC's revenue sales, and hence we estimate
that ITC needs to a nominal 0.5% weighted average increase in prices to neutralise impact. We
see limited impact, and maintain Buy.
West Bengal increases VAT to 20%
The State Budget of West Bengal last week has raised the VAT on tobacco products
including cigarettes from 13.5% to 20%. While we do not have exact contribution of West
Bengal to ITC's revenues, based on our channel checks, we believe the state contributes 7-
9% of ITC's cigarette revenues.
The weighted average impact on ITC's overall portfolio is not material to cause any impact
either on its margins or on its volume sales. We expect ITC to raise prices of some its brands
in the premium segment to neutralise the impact.
Recent VAT increases are a growing cause for concern
In 2011, we are witnessing a gradual move up in the VAT rates in most states which is clearly
a cause for concern, as VAT is currently charged on maximum retain price ( MRP), and hence
has a cascading impact on ITC's tax incidence.
Before, West Bengal (13.5%-20%), the states of Tamil Nadu (12.5-20%), Assam (12.5%-
20%), Gujarat (12.5-25%), and Rajasthan (12.5%-40%) had increased VAT on cigarettes and
tobacco products.
However, the only positive aspect has been the growing attempt to create awareness of the
ill-effects of other formats of tobacco like banning of " sachet" packaging, and media publicity
of ill-effects of chewing tobacco on health. This can over time shift the dual users of cigarettes
and these formats of tobacco to cigarettes.
ITC's earnings drivers intact, buy maintained
We expect ITC to sustain the 8% volume growth recorded in the 1QFY12, and expect ITC to
record a 6-7% volume growth for FY12. This volume recovery has to be viewed in the context
of the 2.8% volume decline which ITC recorded in FY11 due to sharp price hikes induced by
10% excise duty hikes. In FY12, the volume recovery gathered momentum in 2HFY11, and
hence we are expecting some softness in volume growth in the later quarters of FY12.
ITC's other FMCG business could be the next value driver as the business is reaching critical
scale in many segments. Overall it would have a revenue of Rs53bnE in FY12, and continues
to deliver growth of 19-20%. We expect the business break-even in FY13, and turn profitable
beyond that.
We have an EPS growth estimate of 19%. While the lower base of 1QFY11, has driven a
higher PAT growth of 24.5%. We maintain our Buy recommendation
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
West Bengal State Budget has raised VAT on tobacco products (including cigarettes) to 20%
from 13.5%. The state would account for 7-9% to ITC's revenue sales, and hence we estimate
that ITC needs to a nominal 0.5% weighted average increase in prices to neutralise impact. We
see limited impact, and maintain Buy.
West Bengal increases VAT to 20%
The State Budget of West Bengal last week has raised the VAT on tobacco products
including cigarettes from 13.5% to 20%. While we do not have exact contribution of West
Bengal to ITC's revenues, based on our channel checks, we believe the state contributes 7-
9% of ITC's cigarette revenues.
The weighted average impact on ITC's overall portfolio is not material to cause any impact
either on its margins or on its volume sales. We expect ITC to raise prices of some its brands
in the premium segment to neutralise the impact.
Recent VAT increases are a growing cause for concern
In 2011, we are witnessing a gradual move up in the VAT rates in most states which is clearly
a cause for concern, as VAT is currently charged on maximum retain price ( MRP), and hence
has a cascading impact on ITC's tax incidence.
Before, West Bengal (13.5%-20%), the states of Tamil Nadu (12.5-20%), Assam (12.5%-
20%), Gujarat (12.5-25%), and Rajasthan (12.5%-40%) had increased VAT on cigarettes and
tobacco products.
However, the only positive aspect has been the growing attempt to create awareness of the
ill-effects of other formats of tobacco like banning of " sachet" packaging, and media publicity
of ill-effects of chewing tobacco on health. This can over time shift the dual users of cigarettes
and these formats of tobacco to cigarettes.
ITC's earnings drivers intact, buy maintained
We expect ITC to sustain the 8% volume growth recorded in the 1QFY12, and expect ITC to
record a 6-7% volume growth for FY12. This volume recovery has to be viewed in the context
of the 2.8% volume decline which ITC recorded in FY11 due to sharp price hikes induced by
10% excise duty hikes. In FY12, the volume recovery gathered momentum in 2HFY11, and
hence we are expecting some softness in volume growth in the later quarters of FY12.
ITC's other FMCG business could be the next value driver as the business is reaching critical
scale in many segments. Overall it would have a revenue of Rs53bnE in FY12, and continues
to deliver growth of 19-20%. We expect the business break-even in FY13, and turn profitable
beyond that.
We have an EPS growth estimate of 19%. While the lower base of 1QFY11, has driven a
higher PAT growth of 24.5%. We maintain our Buy recommendation
No comments:
Post a Comment