Buy ITC; target of Rs 226: FIFL

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Buy ITC; target of Rs 226: FIFL

Fortune Interfinance (FIFL) is bullish on ITC and has recommended buy rating on the stock with a target of Rs 226 in its January 24, 2012 research report.

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Fortune Interfinance (FIFL) is bullish on ITC and has recommended buy rating on the stock with a target of Rs 226 in its January 24, 2012 research report.

"ITC, EBIT losses decline 36% YoY: FMCG sales increased 24.5% YoY to INR 13.7b and EBIT loss declined 36% to INR468m. Incremental EBIT margins were higher at 10% indicating higher growth in packaged foods and education and stationery segments. Packaged Foods sales posted strong growth with volume growth and profitability picking up. Growth was led by biscuits (Sunfeast launching new variants at the premium end), atta (Aashirwad growing in volumes and realizations) and Bingo. The company continues to invest in infrastructure to support the increased scale being achieved in foods. We believe the premiumisation strategy in biscuits is driving margins for ITC's food products. Personal care traction remains strong, with new launches in soaps, shampoos and increased distribution led growth in skin care. Vivel Activ Fair fairness cream is performing well across markets and the company is also satisfied with its launch in the domestic talc market (Fiama Di Wills Face and Body Talc).Lifestyle retail posted healthy growth; however signs of slackening consumer demand are visible. Pace of decline in losses has accelerated with the food division (65% of FMCG sales) on a profitable growth path. We expect all FMCG segments excluding personal care to be EBIT positive by the end of FY12."

"Volume growth in cigarettes at ~5% was lower vs expected 7% led by 1) higher base in Q3FY11 and 2) price hikes taken through FY12 to counter tax hikes likely impacting demand. However margins jumped 176bp yoy at higher prices. We expect cigarette volumes to pick up in Q4 as price hikes are absorbed and as base effect normalizes. Ex cigarette businesses show mixed performance FMCG revenue growth was strong at 24% led by over 15% volume growth. Segmental losses declined 37% yoy due to operating leverage and improving profitability in snacks business. Paper/paper board EBIT jumped 17% with 111bp margin gains led by better mix. Hotels revenue declined 1% yoy given lower room rates due to slowdown in tourist arrivals. Agribusiness revenue growth at 10% yoy was marginally below expected due to raw material availability/quality issues."

"We at FIFL believe that at the CMP of Rs 205 the stock is trading at 12.70x FY13E EPS .We maintain' Buy' on the stock with a target price of Rs 226 based on 13.41 x FY13E EPS," says Fortune Interfinance research report. 

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To read the full report click on the attachment