Edelweiss, ITC - Women, new consumers to puff up volume

As per the latest findings of Global Adult Tobacco Survey (GATS) on tobacco usage in India, smoking is eight times more prevalent among Indian men than women. However, an average Indian female smoker puffs more cigarettes a day (7) than male (6.1). In our view, cigarette companies would be increasingly targeting female consumers as only 3% of women tobacco users smoke cigarettes daily as against 21% male. Indian smokers have a low quit ratio (less than 20%), which is way below countries like UK, US, Brazil and Uruguay (35%). This is reflected in sticky volumes of Cig companies in India even in an adverse year like FY13 (ITC saw 0.5% volume growth YoY in Q1FY13 in spite of an excise hike of ~21% YoY and sharp VAT increases). We believe that high potential from women users and switch from non-Cig to Cig will aid ITC (Cig account for 15% of total tobacco usage) as the duplication is high in these categories which will enhance tobacco users’ upgrade to cigarettes. Maintain ‘BUY’.

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Women consumers a new potential target

As per data from the GATS, published by ‘The Lancet’, tobacco usage among women is on the rise, doubling from 10% to 20%. With just 3% of women tobacco users smoking cigarettes daily, this provides a high potential for new cigarette consumers. An average Indian woman takes up smoking at an age of 17.5 years against 18.8 years for men.

Premiumisation to aid cigarette consumption

India’s per capita consumption of cigs is 1/15^th of that of China. Having the most smokeless tobacco users in the world, India can see a rise in consumption of cigs as duplication is high and premiumisation would aid cigarette consumption. Also, Gutkha has been banned in many states like Maharashtra, Rajasthan, HP, Kerala, MP and Bihar.

Outlook and valuations: Strong; maintain ‘BUY’

We remain positive on ITC due to its strong distribution network and robust growth in its diverse businesses. At CMP, the stock is trading at 27.5x and 23.8x FY13E and FY14E, respectively. We reiterate ‘BUY’ and ‘Sector Outperformer’ rating.

EdelFlash: ITC - Women, new consumers to puff up volume

Regards,