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Last Updated : May 21, 2013 01:04 PM IST | Source: Moneycontrol.com

Buy ITC; target of Rs 344: PLilladher

Prabhudas Lilladher is bullish on ITC and has recommended buy rating on the stock with a target of Rs 344 in its May 17, 2013 research report.

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Prabhudas Lilladher`s research report on ITC

"ITC reported PAT of Rs19.3bn on the back of 20.2 percent EBIT growth in cigarettes even as Paper and Hotels continued to disappoint. We expect non-cigarette business growth to pick up and estimate 31 percent EBIT CAGR over FY13-15. ITC has taken 15 percent price increase to mitigate the impact of excise and VAT increase. Cigarette volume growth and margin expansion are the key factors to watch out for, given second consecutive year of sharp excise increase. We are currently factoring in 1 percent volume growth and 15 percent EBIT growth in cigarettes in FY14, higher-than-expected volumes can provide upside to our estimates. The stock trades at 25.3xFY15 EPS of Rs 13.2."

"Cigarette business reported another quarter of 20 percent EBIT growth led by 2.5 percent volume growth. FMCG sales grew 26 percent, with EBIT of Rs119m showing a turnaround. Hotels business reported 51 percent decline in EBIT due to industry slowdown, higher costs and impact of commissioning of new property. Paperboard business reported 3.9 percent decline in EBIT as margins declined due to higher input costs. Agri business reported 20.5 percent EBIT growth as 60bps decline in margins negated the benefits of stabilisation of new leaf tobacco unit. We believe that non-cigarette businesses will report higher growth in FY14 led by 1) new unit in paperboard 2) turnaround in FMCG business and 3) slow recovery in hotels from current lows. We estimate 31 percent CAGR in non-cigarette EBIT over FY13-15 as against 5 percent in FY13."

"Cigarette business has seen second consecutive year of sharp excise increase; we estimate 1 percent volume growth and 15 percent EBIT growth. Higher-thanexpected growth in 64mm cigarettes can provide upside to our estimates. Net sales have increased by 18.8 percent to Rs 82.5bn. Gross margins have declined 260bps due to an increase in material cost. However, EBITDA margins were maintained due to reduction in employee cost and other expenditure and EBITDA increased 18.9 percent to Rs 27.1bn. PAT increased by 19.4 percent to Rs 19.3bn. FMCG business has turned EBIT positive for the first time, while cigarette business profitability has been sustained. Hotels and Paper Business continue to remain under pressure. Buy the stock for price target of Rs 344," says Prabhudas Lilladher research report.  

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First Published on May 21, 2013 01:04 pm