HSBC maintains its `Neutral’ rating on ITC

HSBC maintains its `Neutral’ rating on ITC with a price target of Rs. 172 per share. Considering the staggered price increase that ITC has been taking this year and that the budget has been delayed from February to June, questions are being raised whether there is one more price increase in the offing.

Research: HSBC
Rating: Neutral
CMP: RS 180

While HSBC estimates a weighted average price increase, including mix effect, 14% has been implemented so far, and the probability of a further increase is small as ITC can manage decent growth in Q1FY10E without price increase, and ITC may not wish to jeopardise volume growth further when it is currently negative.

If ITC decides to hike prices it could be implemented in the following order of priority: (1) Goldflake Kings is likely to be the first option due to the price inelasticity in this segment. (2) Bristol and Flake with price point of Rs 1.9 per stick; since loose buyers already pay Rs 2, trade margins can be cut; (3) Goldflake regular though has had high price increases and has strong brand loyalty (4) Scissors Regular is a less probable option since plains migration needs to take hold. HSBC derives a fair value of Rs 154 for the high tax and Rs 201 for the low tax scenario. At the target price, the stock will trade at 16.8x FY10E EPS.

Tags: calls, daytrading, free calls, intraday, tips

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