Hold ITC; target of Rs 271: R K Global

"ITC reported very impressive revenue numbers for Q1FY’13 (`67,130 mn) that surpassed market expectations including our forecasted numbers (`67,091 mn) by ~0.05%. Key positive were lower losses and margin improvement in the FMCG business even after high duties, gives us belief that ITC’ channels deliverance are strong. We expect the company to sustain margins in the cigarette business and FMCG in FY’13E, coupled with shedding loses in the FMCG-Others segment."

"The company reported a revenue figure of `67,130 mn for the period Q1FY’13, against our expectations at `67,091 mn. FMCG revenues grew 23% YoY, predominantly driven by volumes (especially in snacks). Segment losses halved YoY, with the annual run-rate (`1,400 mn) currently in line with our FY’13E forecast. The company has gained some market share in the soaps and skin care categories, but is consolidating its share in shampoos."

"The company performed better in the paper and agri businesses, while the hotels business was under pressure due to economic slowdown. While agri business growth was impacted due to a global surplus scenario in leaf tobacco market, margins expanded on the back of which EBIT grew 9%. An improvement in product mix also helped paperboards EBIT which rose 17% and margins expanded 150bps YoY."

"Rest assured, short-term impact remains opaque, gives a definitive long-term BUY. We wish to review one more Q to see if results are aligned for any rating upgrade. We value the stock on its CMP, at a P/E of ~31.9x and P/BV of ~9.4x of FY’13E EPS and BVPS. We have revalued ITC TP and re-iterated a HOLD. Our re-valued TP stands at Rs 271 (a potential upside of ~4.6% from present levels). Our TP is arrived at a P/E of ~33.1x and P/BV of ~9.5x of FY’13E EPS of Rs 8.1 and BVPS of Rs 27.4," says R K Global research report.

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