ITC Ltd. share price target

ITC reported lower than expected revenue growth for Q1 dragged by disappointing cigarette volume growth (3% vs 5-6% estimates). It reported ~8% EBIT growth in its core cigarette business led by better product mix.

ITC Ltd.s profit in the June quarter met estimates as its operating margin rose. For the quarter ended June 2019, sales grew 7% to Rs 12657.90 crore. OPM rose 80 basis points to 39.0% which took OP up 9% to Rs 4937.75 crore. Other income jumped 53% to Rs 647.29 crore and interest cost grew 85% to Rs 14.58 core. As depreciation grew 18% to Rs 378.94 crore, PBT grew 12% to Rs 5191.52 crore. Tax grew 10% to Rs 1755.01 crore after which PAT went up 13% to Rs 3436.51 crore. Minority...

ITC posted a mixed set of numbers in Q1FY2020 with revenue growing by just 6%, while better operating margins (OPM) and higher other income helped PAT grow by ~12%. Sales volumes of the core cigarette business grew by just 3%, missing ours as well as the street's expectation of 5-6%. Non-cigarette FMCG business grew by 8% (excluding discontinued retail business), while it's EBIDTA grew by 41%. Other businesses did well by clocking double-digit revenue growth. Discounted valuations of 21.5x its FY2021E earnings make...

Stable taxes in FY19 accelerated cig volume/EBIT growth to 5.5/9% vs. -5/7% CAGR during FY15-18. Even then ITC did not enjoy a re-rating as investors flocked towards peers like HUL, Dabur and Britannia etc. Rather, cig business saw a de-rating (20-25%, based on assigning fair valuation to other segments) over the last 12-months. We believe the quantum of de-rating is unfair and expect implied cig valuation will recover to its 5 year average EV/EBITDA of 18x (20% discount to Colgate's 1 year forward EV/EBITDA of 22x; similar market leadership, vol growth and pricing power). Mean reversion in cig valuation will be led by (1) Stable taxes, (2) EBIT margin expansion and (3) Pickup in rural consumption. FMCG margin expansion is the other catalyst for a re-rating. We believe that unfair valuation discount will narrow. ITCs 1Q performance was soft vs. its FY19 show but in-line with FMCG peers. We expect 1Q growth trajectory to replicate over FY20, led by higher base of cig. volume growth and consumption slowdown. We value ITC on SoTP basis and arrive at a TP of Rs 362 (implied P/E of 28x vs. earlier assigned P/E of 32x). We de-rate cigarette business by 10% (EV/EBITDA 18x vs. 20x implied earlier) owing to slower than expected volume growth in the era of stable taxes. Maintain BUY.

After two quarters of cigarette margin decline, ITC's cigarette margins expanded 145 bps to 70.8% in Q1FY20 on the back of stable taxation regime and selective price hikes during the year. We believe the company's efforts to localise capsule filters (capsule filters are largely imported) and price hikes in the range of 14-16% in select portfolio (some Gold Flake varieties: 2.5% volume of cigarette portfolio) yielded results for this segment's margin expansion. FMCG EBIT improved from | 50.1 crore to | 78 crore (EBITDA increased from | 127.8 crore to | 180.7 crore) led by strong growth in...

View: EBIT margin improvement in cigarette business; Maintain Buy. ITC's Q1FY20 results were broadly in line with our estimates. The cigarette business posted +3% YoY volume growth, below our estimate of 5%. However, increase in margins in the cigarette business was encouraging. Despite sluggish demand in Q1, ITC's FMCG business reported a 6.6% increase in topline and 80bps expansion in margin. We have maintained our FY20E and FY21E EPS estimates at ` 11.4 and ` 12.2, respectively. In our view, the stock is trading at a steep discount to peers and is an...

ITC reported broadly in-line numbers for Q4 with 8% volume growth (slightly above our expectations) and ~10% EBIT in core cigarette business. ITC reported Broad based growth in other businesses like Hotels, Agri, Paperboard and sustained profitability improvement in FMCG aiding PAT growth of 18.7%

The competitiveness of ITC's diverse businesses rest on the strong foundations of institutional strengths derived from its deep consumer insights, cutting-edge Research & Development, differentiated product development capacity, brand-building capability, world-class...

ITC remains our top pick in the large cap consumer space, as its growth trajectory is rising at a time when the ask rate remains low (unlike its peers), given its steep valuation discount vs. the sector (~40%). We expect the valuation gap to narrow as growth converges with the sector. ITCs 4Q/FY19 performance was robust vs. its delivery over FY15-18. Cigarette volume growth has returned owing to a stable tax regime, which validates our thesis that ITCs performance will improve as affordability returns. We arent too perturbed with near term margin pressure, as cigarette biz commands the highest margins across industries (volumes matter). We maintain BUY and value ITC on FY21E EPS at 32x, arriving at a TP of Rs 398.

View: Volume growth improvement continues; Maintain Buy. ITC's Q4FY19 results were marginally ahead of our estimates. The cigarette business posted +9% volume growth, which was ahead of our estimate of 7%. However, decline in margins in the cigarette business is a cause for concern. Despite sluggish demand in Q4, ITC's FMCG business delivered 7.3% increase in top-line and 100bps expansion in margin, was encouraging. We have maintained our FY20E and FY21E EPS estimates at ` 11.2 and ` 12.2, respectively. In our view, the stock is trading at a steep...