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Summary of Contents
STOCK UPDATE
ITC
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs220
Current
market price: Rs162
VAT fears allayed
ITC had been
underperforming the market owing to fears of the implementation of
the value-added tax (VAT) and a hike in the excise duty on
cigarettes (read our report, "All-round performance", dated February
01, 2007). Finally in this budget, the excise duty on cigarettes was
increased by 5% and the hike was at the lower end of the
expectations. Moreover with no change in the additional excise duty,
the fear that VAT may be levied sometime in the near future has been
allayed. The likelihood that the government may allow VAT on
cigarettes through a separate amendment also appears low.
SECTOR
UPDATE
Tyres
Rubber's loss, tyre's gain
The
easing of the rubber prices is a positive development for tyre
makers, given the fact that rubber accounts for around 39% of the
total raw material cost.
In the past, owing to a buoyant
demand scenario, the tyre manufacturers had been able to pass on a
large part of the increased cost of inputs to user industries. Most
of the tyre majors have announced a number of price hikes in the
last twelve months (in the region of 20-25%). In fact, a price hike
was initiated in February this year to pass on the upmove in the
rubber prices during January. Apollo Tyres raised its prices in the
passenger car radial segment by about 2% while MRF Tyres raised the
prices by about 1.5-2%. The price hikes has limited the adverse
impact of the rising input costs on the margins of the tyre
manufacturers. We have also noticed that the tyre prices tend to
remain sticky and do not come down as sharply with a fall in the raw
material
prices. |
