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Diversified conglomerate ITC is heading towards stronger margins in the coming quarters as it hiked prices of select cigarette brands by over 10% on Monday. However, volume growth is likely to stay at the current level, say analysts.
According to a senior analyst at Sharekhan the latest price hike will result into stronger margins from the company. “Volumes will continue to remain under pressure in the next two quarters but the latest hike would ensure better margins for the Kolkata based company,” he said.
ITC, on Monday, increased prices of select cigarette brands, Gold Flake and Classic by over 10%. This is the second hike in as many months. The price of 'Gold Flake Kings' pack consisting of 10 cigarettes will now cost Rs 75, as against earlier price of Rs 68. A pack of 'Gold Flake Lights' consisting of 20 cigarettes will cost Rs 75 compared to Rs 68 earlier.
Likewise, the 'Classic' pack consisting of 20 cigarettes will now cost Rs 150 from Rs 136 earlier.
The tobacco to hospitality major had hiked prices of its select cigarette brand in July also.
ITC’s primary vehicle of profit generation, the cigarette business, posted net sales of Rs 3,537 crore in the first quarter of current fiscal compared to Rs 3,304 crore a year before, higher by 7.1%. While profits were up to Rs 2,242 crore as against Rs 1,900 crore in the period a year before, a growth of 18%.
“Last quarter results clearly demonstrated how volume sales were affected and this will continue at least in the next two quarter given the current macroeconomic scenario,” he added.
The analyst explained the cigarette business is price elastic so market will take some time to absorb the recent back to back price hike but consumption won’t be affected.
“Margins would be over 32% in the next couple of quarter owing to the price hike resulting into better profits,” the analyst added.
