ITC - UP State Government reduces VAT on cigarettes - Nirmal Bang

UP State government has reduced VAT on cigarettes from 50% to 25% yesterday. This is positive for cigarette companies like ITC, Godfrey Philips, VST Industries. ITC has already judiciously taken price hikes to negate the impact of the hike in excise duties by various state governments. The demand for cigarette is resilient and ITC being a market leader plus additions of new additions of cigarette consumers have kept the demand for cigarettes un-deterred.

In spite of taking number of price hikes, ITC has not faced any meaningful impact on the demand for cigarettes. With the reduced VAT rate, the demand for cigarettes will increase plus the benefit of price hike will reflect in the financials of the company. We are positive on ITC due to its strong pricing power, improving return ratios, strong free cash flows and strong earnings growth visibility which is likely to support valuations.

We recommend our investors to continue to 'HOLD' ITC shares for further gain.

Source : Equity Bulls

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