ITC Ltd. share price target

ITC reported a modest Q3FY20 performance that was broadly in-line with street expectations reporting 5%/6% revenue/EBIT growth in its core cigarette segment led by 2% cigarette volume growth. It reported ~11% growth in Non-Cigarette EBIT

Increase in duty on tobacco products is expected to affect margins in the near-term. However, we remain optimistic on company's performance and reiterate our BUY rating on the stock with a revised target price of...

Established in 1910, as the 'Imperial Tobacco Company of India Limited', the company completed 100 years in 2010 and as of 2012-13, had an annual turnover of US$8.31 billion and a market capitalization of US$50 billion. It employs over 30,000 people at more than 60 locations across India and is part of Forbes 2000 list. Its five diversified businesses are Fast-Moving Consumer Goods (comprising Foods, Personal Care, Cigarettes and Cigars, Apparel, Education and Stationery Products, Incense Sticks and Safety Matches), Hotels,...

Established in 1910, as the 'Imperial Tobacco Company of India Limited', the company completed 100 years in 2010 and as of 2012-13, had an annual turnover of US$8.31 billion and a market capitalization of US$50 billion. It employs over 30,000 people at more than 60 locations across India and is part of Forbes 2000 list. Its five diversified businesses are Fast-Moving Consumer Goods (comprising Foods, Personal Care, Cigarettes and Cigars, Apparel, Education and Stationery Products, Incense Sticks and Safety Matches), Hotels,...

Stable taxes in FY19 accelerated cigarette volume growth to 5.5% vs. -5% CAGR during FY15-18. EBIT growth also accelerated to 9% as compared to 7% CAGR during FY15-18. Yet company could not enjoy re-rating as investors have flocked towards ITC's peers (HUL, Dabur and Britannia etc.). Rather cigarette business saw de-rating (>20% fall, based on assigning fair valuation to other segments) over the last 12-months. We expect cig valuation will recover owing (1) Continuation of stable taxes, (2) EBIT margin expansion and (3) Pickup in rural market. We believe cigarette valuation will recover to its average of 18x EV/EBITDA (still lower than 25x for Colgate which is similar wrt market leadership, vol growth trajectory and pricing power). Other catalyst in the business is FMCG, better margin traction will also offer better value for ITC. We continue to believe that valuation discount will narrow down. ITC clocked in-line performance despite continued macro challenges. ITCs performance was in sync with other FMCG companies. ITC-Cig/ITC-FMCG growth was at 5/6% vs. HUL/Dabur/Colgate/Marico posted domestic growth of 4/6/4/-1% in 3QFY20. ITCs cig/FMCG performance was very much comparable to other FMCG cos for the past many quarters. Despite that, stock has de-rated over the last 12 months. We believe de-rating is unwarranted when the co is consistently showing quality earnings. We value ITC on SoTP basis (link to table) and arrive at a TP of Rs 360 (implied P/E of 25x). Maintain BUY.

Cigarette volumes continued to see muted volume growth of 2-3% growth vs. ~10% volume growth of VST Industries. ITC is losing market share as contribution of smaller size cigarettes is increasing and VST Industries & Godfrey are gaining volumes at expense of ITC. FMCG revenues have grown at a slower pace at 6.1% (excluding lifestyle retailing business), largely impacted by rural growth, which was impacted by trade channel liquidity crunch. The company has expanded its operating margins by 230 bps to 7.7% in FMCG business. With ITCs strong and wide distribution network at...

beneficiary of an uptick in FMCG demand (increasing depth and width of portfolio) and is inching towards double digit EBIDTA margins over next 2-3 years, in our view. Paperboard business is in fine fettle given gains from steady prices and benign input costs. Hotels ARR and occupancy indicates steady improvement in industry dynamics, however recent outbreak of Corona Virus might impact tourist flow in the peak season. ITC trades at 15.7xFY22 EPS, ~50% discount to our coverage universe with 3% dividend yield and 12% PBT CAGR over FY20-22. Risk reward remains favorable,...

The company reported revenue growth of 5.9% YoY to Rs. 11,750 cr in Q2FY20. Across segments, the growth was led by Agri business (+19.3% YoY to Rs. 2,648cr). Revenue from FMCG business increased 5.2% YoY to Rs. 8,615cr. Growth in FMCG revenue has tapered down due to the weakness in overall demand environment especially in rural markets and wholesale channel, tight liquidity conditions coupled with disruptions and floods in several parts of the country. Despite slowdown in consumption, revenue from Paper boards, paper and packaging grew at 9.9% YoY to Rs. 1,565 cr. Hotel business revenue also rose 17.7% to Rs. 427cr....

ITC reported in-line growth for Q2 with 6%/7% revenue/EBIT growth in its corecigarette segment led by 3% cigarette volume growth (3% vs 3-4% estimates). It reported ~15% growth in Non-Cigarette EBIT led by better sustained improvement in FMCG profitability

Stable taxes in FY19 accelerated cig volume growth to 5.5% vs. -5% CAGR during FY15-18. EBIT growth also accelerated to 9% vs. 7% CAGR during FY15-18. Still ITC did not enjoy a re-rating as investors flocked towards ITC's peers (HUL, Dabur and Britannia etc.). Rather cig business saw a de-rating (>20% fall, based on assigning fair valuation to other segments) over the last 12-months. We expect cig valuation will recover owing to (1) Continuation of stable taxes, (2) EBIT margin expansion and (3) Pickup in rural market. We believe cig valuation will recover to its avg. of 18x EV/EBITDA (still lower than 25x for Colgate which is similar wrt market leadership, vol growth trajectory and pricing power). Other catalyst in the business is FMCG, with scope for margin expansion. We continue to believe that valuation discount will narrow. ITC clocked in-line performance, with no deceleration vs. 1Q (most consumer cos were impacted by slowdown and floods). Cig rev/vol/EBIT growth of 6/3/7.4% was steady. FMCG and Hotels outperformed with rev/EBITDA growth of 6.5/39% and 18/37%. ITCs earnings growth (ex-corp tax benefits) of 10% has been steady over the last 8 quarters, still stock has been de-rated. We believe de-rating is unwarranted when the co is consistently showing quality earnings. We value ITC on SoTP basis and arrive at a TP of Rs 368 (implied P/E of 25x). Maintain BUY.