No reason to shy away from buying ITC because of excise duty hike: Mehraboon Irani, Nirmal Bang Securities

In a chat with ET Now, Mehraboon Irani, Principal & Head-Private Client Group Business, Nirmal Bang Securities, talks about ITC.

ET Now: Let us discuss ITC. This is one sector or company where the news from the budget has been poor, with the excise duty on cigarettes increased from about 7% to 72%. Yet ITC has gone up post budget. What is your take on this?

Mehraboon Irani: For the last two years, we have had steep hikes in excise duty. I have consistently been saying around the time of every budget that whenever there is an excise duty hike, go and buy ITC. It may appear to be a very different view, and it has got largely to do with the rounding affect of the rupee.

Cigarette is an addiction which I have never propagated or supported. But the fact is, I do not see this addiction coming down. If somebody is smoking, say, 20 cigarettes a day, he does not reduce it to 17 after a price hike. And even if at times he does, it is only for a few days. Post that, he always goes back to his old habit.

Secondly, excise is never in the form of Re 1 or Rs 2; it is always in the form of certain paise. The company rounds it off to the nearest rupee, thereby improving the margins. ITC is a great company but an expensive stock. Yet I do not think this excise duty hike is any reason why people should be shying away from this stock. Because at the end of it all, I do not see the margins getting affected.

The hike is lower than expected; that it the first point. The second point is, the company passes the hike on to the customers ultimately. Even when the consumption drops a little bit, or the growth in terms of volumes drops slightly, the margins improve because of the rounding affect of the rupee. You will never see a 25-paise, 50-paise or 75-paise hike. It is always Re 1 or Rs 2.