Maintain Buy on ITC - Motilal Oswal

ITC: Plant closure due to uncertainty over pictorial warnings unlikely to impact consumer sales

- There is lack of clarity on the type of pictorial warnings as earlier reports were indicating that the date of implementation might be changed.

- The industry is also seeking for longer time duration (currently 12 months) of change in pictorial warnings once it gets implemented.

- The loss of production will not impact consumer sales, in our view; past experience indicates adequate excess inventory when such changes are implemented.

- Once the new pictorial warnings get implemented, companies need to change their packaging which will result in a one time cost of Rs500-750m for ITC.

- We believe the plant closure is a transitory event. We remain positive on the long-term growth outlook on the tobacco industry and ability of ITC to capitalize on the same. We expect earnings CAGR of 19% over FY10-12. The stock trades at PE of 22.7x FY12 EPS. Maintain Buy.

Source : Equity Bulls

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