ITC Considers Increasing Prices for its Products
International Tobacco Company (ITC), India’s largest cigarette company and a producer of cookies and other products, will raise prices of some items as the rupee’s drop to a record low menaces its largest revenue margin in nine years. According to estimates the rupee has weakened about 17.5% against the dollar in the past year, making it the lowest among Asia’s 11 most traded currencies.“It is obligatory to lift prices as inflation is destroying revenue. The main worry is table oil, as it is something we are not convenient with,” stated Chitranjan Dar, who leads ITC’s food business.
ITC Chairman Yogesh Deveshwar has over the last years engaged into new business including food and clothes in order to decrease the dependence on cigarettes as India makes the rules stricter to discourage smoking. “In case they increase the prices at a level of 7 % to 9%, we do not believe that it is going to affect. Brand loyalty is for sure the best source of confidence for the company,” stated Ajay Jaiswal, manager of research at Microsec Capital Ltd.
ITC, which is 30%, owned by British American Tobacco, maker of Pall Mall cigarette brand, has gained 15% this year. The shares increased 2% to 220.65 rupees in Mumbai.
Decreasing growth in Asia’s third largest economy may influence the demand for ITC’s smoking products. India’s gross domestic product increased at approximately 4.9% last quarter, which was the slowest pace within nine consecutive years and below the average estimate of 6% boost in a Bloomberg survey.
Inflation in the country has reached 7%, which is the highest among the BRIC nations (Brazil, Russia, India and China).
Backing margins at ITC’s non-smoking business may be a response to growth as India makes stricter smoking control. The Indian health ministry has recently prohibited cigarette advertising, thus making is more complicated to market new and existing brands. For instance New Delhi state has even prohibited smoking in public places.
Profit at ITC’s consumer products business, boosted 25% in the first quarter of 2012, outpacing the 15% raise in cigarette sales. Revenue before taxes from tobacco products increased 19.5%, while losses from the other goods narrowed. ITC’s gains may raise 13.5% to 69.5 billion rupees, according to industry experts. This estimate demonstrates the slowest pace of increase in four consecutive years.By Clark Moore, Staff Writer Copyright © 2012 Hot-Cigs.com All rights reserved.