ITC price target slashed 26% on likely cigarette price hikes

MUMBAI/KOLKATA: Several brokerages downgraded ITC and cut their target price for its stock by up to 26% on the back of a proposed sharp hike in taxes on tobacco products. These cuts came even as analysts and brokers awaited the finer details of the govt's proposed tax changes, effective Feb 1.Analysts at brokerage houses expect ITC to hike cigarette prices by up to 32%. They also warned that higher volumes of smuggled cigarettes may flood the Indian market now.On Friday, the stock price of ITC lost another 3.8%, to add to its 9.8% fall on Thursday, to close at Rs 350. In two sessions, the market capitalisation of the cigarette-maker has slid by about Rs 66,200 crore to nearly Rs 4.4 lakh crore.

Domestic financial services company Emkay Global termed the hike as a 'fiscal bombshell' for the cigarettes major, downgraded the stock to 'reduce' from 'add' and cut its target price by 26%, from Rs 475 earlier to Rs 350.

It said the hike in excise duty on cigarettes would "hurt industry volume and upset ITC's earnings" as the regulatory stance towards tobacco consumption has changed "from rational to one that curbs consumption".JP Morgan, one of the foreign broking majors in India, cut ITC's target price by 21% to Rs 375, from Rs 475. It also expects the cigarettes major to hike prices but warned of a shift in consumer preference. "Further higher increase for 'king size filter tip' segment implies increased risk of consumer downtrading to cheaper variants and may also induce an increase in offtake of illicit cigarettes," it said.Industry sources confirmed that cigarettes of shorter length would see lesser hikes (5-10%) compared to the longer ones (20-30%). Cigarette companies are expected to take a decision on price hikes in the next 7-10 days, they said.