ITC: Sensex topper

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ITC tops the gainers' list among the Sensex stocks with weekly appreciation of 11.31 per cent. The weekly trading volumes more than doubled at 8.47 crore shares compared with 3.53 crore in the previous week.

ITC has underperformed the market by 24 per cent in the current year till date on concerns of VAT implementation and subsequent impact on cigarette volumes and earnings growth.

However, in the first quarter ended June, the company posted a sound 8.9 per cent rise in cigarettes volumes and a 27.6 per cent growth in agri business.

Net profit increased 20 per cent, thanks to a 150 basis points increase in operating margins in the cigarettes business. The stock has underperformed the market by 40 per cent in the last 12 months on concerns over ITC's ability to pass on the tax increases. The company, however, passed on the entire tax hike to consumer by increasing prices by 18-20 per cent.

The Q1 results reflect that the company could implement price hike successfully without losing growth in volumes. However, the risk according to CLSA analyst is the increase in VAT rates in the next year. On the upside, as the state government of Uttar Pradesh joins VAT, the taxation in the state may go down from existing 33 per cent to the usual 12.5 per cent.