This means that the company is targeting the regular filter segment for price increases in the immediate future. There are indications that the company is raising the prices of cigarettes in the price range of Rs 9-12.50 per pack. This segment includes Scissors Filter, Capstan Filter, Berkeley Filter, Bristol Filter, Wills Flake Premium Filter and Gold Flake Filter.

Top company sources when contacted did not rule out price increases. The last price increase was done in January 1999 when the price of Gold Flake Kings was increased by 5 per cent. Thesesources maintained that the company had to suffer the burden of increased costs on account of 5 per cent higher state taxes and prices will be reviewed at an appropriate time."

A recent study of the Indian cigarette market by a leading resarch outfit in Mumbai shows that out of the total market size of 104.5 billion sticks, the regular filter segment has the largest share of 46 per cent in volume terms. This is also the segment where the growth rate is 10 per cent per annum whereas the plains segment has a negative growth of 9 per cent.

Interestingly, the study points out that more than 50 per cent of the company's revenues come from the filter brands while the plains/micros contribute about 18 per cent to overall revenues which explains the company's growing interest in the higher value segments.

Significantly, the study estimates that each year ITC generates 16 times more cash than its nearest competitor and its revenues are almost 5 times larger.

The study notes that "the level of dominance isimpressive and should not be taken for granted. In fact, looking around the region (Asia-Pacific), it is unmatched."

Some of the strengths of the company mentioned in the study are: Using its size to bargain for the best tobacco prices; vertical integration (the company owns its own paper, packaging and filter supplies); continuous investment and upgrading of machinery; and constant pursuit of low cost production -- for example, the average number of workers per line in the packaging business has come down from 7 to 3.5.

The study's forecast on company earnings in the next two years suggests that operating profit margins are likely to improve from 29.9 per cent in 1997-98 to 30.9 per cent in 1998-99 and further to 32.3 per cent in 1999-2000. This will be the result of gains in machine productivity of about 8 per cent as a result of its renovation and modernisation of production facilities.

Higher interest expenses and forex losses are expected to restrict net profit growth to 8 per cent in 1998-99.The study forecasts stronger profit generation from 2000-01 as the debt levels come down. Judging from its market performance post-budget, it appears that the market is in a mood to re-rate the ITC stock.