ITC Ltd. share price target

In its bid to diversify its revenue stream, ITC’s non-cigarette business has seen a net revenue growth of 2.5x and PBIT growth of 3.2x over the last decade. ROCE of the non-cigarette business has expanded by 730 bps over the period.

Management is guiding for 80-100bps EBITDA margin expansion every year from cost cuts, scale and premiumisation

For Q2FY24, ITC reported consolidated Net sales of INR 1,77,745 Mn, recording a growth of 3.9% YoY/ 3.6% QoQ. Gross Revenue (ex-Agri Business) grew by 6.9% YoY/ 1.1% QoQ.

Cigarette business continues to report steady revenue growth (+10% YoY; 17% 2Y CAGR), while cigarettes volume growth of ~4-5% is tad below our estimates. Market share gains from the informal segment continue due to (1) stability in taxes and (2) deterrent action by enforcement agencies. We expect volume growth for the formal industry to remain healthy in FY24.

We estimate the company to post Revenue/EBITDA/PAT growth of 10%/12%/12% CAGR over FY23-26E and maintain a BUY rating on the stock with an unchanged TP of Rs 540/share. We value the company at 27x June-25 EPS. The TP implies an upside of 20% from the CMP.