After Classic, ITC hikes Navy Cut prices 10%

A month after it hiked prices on its Classic brand by 10%, cigarette major ITC Ltd has effected a similar hike on Navy Cut. With this, the price of a pack of 10 Navy Cut cigarettes goes up to Rs44.

For the record, ITC had also effected a 5% price hike across its portfolio in February.

The latest hike comes after value added tax, or VAT, rates in Tamil Nadu and West Bengal increased to 20% from 12.5% and 13.5%, respectively in the last two months. Andhra Pradesh, too, had increased VAT rate to 20% from 14.5% recently.

The price hikes by ITC, analysts note, are to counter tax increases and probable changes on cigarette excise in the FY13 budget.
ITC, which gets around 60% of its revenues from cigarettes, reported a 16% growth in first quarter revenues at Rs2,873 crore.

The company had also surprised on the profitability front as net profit margin expanded 233 basis points aided by the hike in cigarette prices and benign tobacco prices.

Going by analysts, such high rate of growth was last seen during 2005-07 and volume growth should likely sustain at 6-7% for the quarters ahead. Some even see a 3-4% decline in cigarette volumes following the price hike.

However, profit growth is expected to remain strong for the near-monopoly cigarette maker, which has about 70% volume market share and 85% value market share through brands like Gold Flake, Wills and Lucky Strike.

“We expect ITC’s Q2FY12 results to be strong with over 20% yoy PAT (profit after tax) growth led by around 7% volume growth in cigarettes, over 30 basis points improvement in cigarette margins led by better mix, and reduced losses in FMCG segment,” Merrill Lynch analyst Prasad Deshmukh said in a note to clients on Friday