ITC - Motilal Oswal

ITC: Gold Flake prices increased by 8.6%; cumulative price increase of 4.2% in 4QFY11

ITC is increasing prices of Gold Flake Filter and Premium brands by 8.6% from Rs35/10 sticks to Rs38/10 sticks.

Motilal Oswal notes that Gold Flake accounts for ~30-35%. We estimate that ITC has taken ~4.2% price increase on the portfolio in 4QFY11 already.

The recent increase seems to be a preemptive move by ITC ahead of the Union Budget. We model 5% increase in excise duty and 6% volume growth.

ITC's cigarette segment profits have grown at an average of 16% in the past six years despite volume decline in FY08 and FY09.

Motilal Oswal remains positive on the long term growth opportunity in ITC. It remains one of the few companies in the FMCG space with low competition and strong pricing power. The stock trades at 23.4x FY12 EPS of Rs7.5 and 20.3x FY13 EPS of Rs8.7. Maintain Buy with a SOTP-based target price of Rs190.

Source : Equity Bulls

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