Price increase lights up ITC stock

After a gloomy period, ITC’s pricing power finally lit up the stock, as the company seems to have decided to raise the buck from customers.

The scrip closed on Thursday at Rs 346.25, up by 2.35 per cent. According to market sources, the company has decided to undertake a price increase of 15 per cent across cigarettes of various lengths. While there has been no official announcement (the company refused to comment on “future pricing strategy”), smokers are already being asked to pay more than the printed maximum retail price (MRP). For instance a 10-stick packet of Gold Flake premium, priced at Rs 69, is being sold for Rs 75 here. Similarly, smokers are paying Rs 100 a 10-stick pack of Classic, while the MRP is Rs 95. Gold Flake Superstar is being charged at Rs 40 for a pack of 10 cigarettes.

Retailers say they have been forced to raise the price as wholesalers are charging more. ITC sells cigarettes to wholesale dealers on a principal to principal basis.

The wholesale dealers in turn sell to secondary wholesalers, from whom retailers buy for eventual sale to consumers.

An ITC spokesperson only said, “Retailers are prohibited by law from charging above the MRP. If they overcharge, they are liable to be prosecuted. As and when the MRP is changed, the revised one will be printed on the packages.”

The stock had dipped 11 per cent before closing eight per cent down on February 28, after Union finance minister Arun Jaitley increased the excise duty by 25 percent on cigarettes up to 65 mm in length. Cigarettes more then 65 mm were to pay 15 per cent more in duty. And, excise duty on tobacco was increased to Rs 70 a kg from Rs 60 a kg.

Analysts say ITC’s pricing power allows it to raise prices repeatedly but it would impact volumes in the long run. Edelweiss Research estimates ITC’s volume growth could decline by nine per cent and eight per cent in FY15 and FY16, respectively.

The company reported a 14 per cent decline in volumes over a year during the third quarter (September-December).

ITC Limited