Buy ITC; target of Rs 233: PINC Research

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Buy ITC; target of Rs 233: PINC Research

PINC Research is bullish on ITC and has recommended buy rating on the stock with a target of Rs 233 in its January 20, 2012 research report.

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PINC Research is bullish on ITC and has recommended buy rating on the stock with a target of Rs 233 in its January 20, 2012 research report.

"ITC reported sedate net sales growth of 14% YoY on account of muted performance of non-cigarette business. Cigarette gross sales growth was at 11% in which we believe volume growth was ~3% as compared to ~7% growth in H1FY12. The full impact of cigarette price hike was on this quarter which tempered down the volume growth. However low excise duty burden resulted into 17% growth in the cigarette net sales. Non cigarette business registered slower sales growth of 13% as compared to 19% growth in H1FY12."

"The recent cigarette price hike has impacted the volume growth which we believe was at ~3% during the quarter as compared to ~7% growth in H1FY12. Cigarette price hike reduced the excise duty rate to 44.4% as compared to 46.9% in Q3FY11 and 45.9% in Q2FY12. The low excise burden has helped in delivering 17% growth in cigarette net sales as compared to 11% growth in gross sales. Higher cigarette realisation growth expanded PBIT margin by 176bps to 57%. Non cigarette business clocked 13% growth which was slower as compared to 19% growth in the H1FY12. FMCG, Paper and Agri business registered 24%, 11% and 7% growth respectively v/s 23%, 15% and 21% growth in H1FY12. FMCG business consistently improved its operating performance and posted PBIT margin of negative 3% v/s negative 4% in Q2FY12 and negative 7% in Q3FY11. Hotel business continued to be under pressure and net sales declined by 1% YoY, however, its PBIT margin has expanded by 500bps."

"We value ITC using DCF methodology and retain our target price of Rs 233. We maintain our 'BUY' recommendation on the stock. As ITC has high dependence on cigarette business therefore any significant change in the govt. regulation on cigarette can lead to change in our estimates," says PINC Research report.    

Institutional holding more than 40% in Indian cos

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To read the full report click on the attachment