ITC - Budget 2023, Positive For Legal Cigarette Players; Market Share Gains Likely: Axis Securities

Axis Securities Report

In Budget 2023, Finance Minister announced an increase of National Calamity Contingent Duty by 16% after a gap of two years. The increase in tax on cigarettes is below ours and street expectations.

We believe cigarette companies will need to take 1-3% price hikes depending upon the length of the cigarette, which we believe is manageable given the nominal increase in the NCCD rate, moreover NNCD accounts only 10% of total cigarette tax.

We expect cigarette companies are likely to see stable volume growth and increase market share from illegal cigarettes going ahead as rate hikes will be miniscule to counter increase in NCCD rate.

We expect the narrative around the ITC is getting strong on account of –

1. Stable cigarette volume growth led by market share gains and new product launches;

2. fast moving consumer goods business reaching the inflection point as its Ebit margins expected to inch up from 7.7% in FY22 led by – effective implementation of 'winning in many Indias' strategy, driving premiumisation, leveraging technology on demand and supply side;

3. Strong and stable growth in hotels, paperboard, and agribusiness.

The stock is currently trading at 19 times FY25E earnings per share. A 3-4% dividend yield provides a huge margin of safety compared to its peers. Moreover, the recovery in the cigarette business and uptick in agri, hotels, and paperboard in the near term makes ITC a better play in the entire FMCG pack where valuations are high.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.