ITC up on Morgan Stanley upgrade

Shares of ITC advanced more than 4% on Thursday after US-based investment banking firm Morgan Stanley upgraded the rating, expecting a rise in cigarette volumes and likely hike in cigarette prices next month.

Even as benchmark indices ended down more than 1%, ITC shares settled at Rs 329 on the BSE, up Rs 12.35 or 3.9%–the highest single day jump since December last year as Morgan Stanley assigned an overweight rating on the stock from underweight.

Nearly 1.3 crore ITC shares exchanges hands on BSE and NSE, two-and-a-half times the 30-day average volume of 50.93 lakh shares.

“The three catalysts for the upgrade of ITC are rising cigarette volume elasticity, higher probability of a favourable tax regime and possibility in hike of cigarette prices in September 2015,” said Nillai Shah, VP, Morgan Stanley.

Apart from manufacturing cigarettes, ITC group has presence in hospitality, FMCG and packaging sectors. Morgan Stanley has set a target price of R400 per share for ITC. Market analysts say that the shares of ITC have significantly underperformed in the last two years.

“Key reasons for the under-performance have been uncertainty around scope and scale of regulation on cigarettes, and excessive increases in excise duty (ED) and VAT,” Amit Sachdeva, director, HSBC Securities and Capital Markets India said in a report.

During the first quarter of 2015, ITC registered ebitda growth of 3% while PAT went up by 4%. Income from cigarette vertical, which contributes to 48% of total revenue for the company, fell by 1.2% year-on-year during the quarter ending in July.

ITC Limited