Motilal Oswal is bullish on ITC and has recommended buy rating on the stock with a target of Rs 360 in its May 17, 2013 research report.
Motilal Oswal's research report on ITC
"ITC, 4QFY13 sales grew 18.8 percent to INR82.5b (est INR81.8b), EBITDA grew 19 percent YoY to INR27b (est INR28.1b), while adj PAT grew 19.4 percent to INR19.2b (est INR19.4b). EBITDA missed our estimate by 4 percent due to steep margin decline in Hotels, Papers and Agri division (aggregated 330bp YoY margin decline in these segments), despite 60bp expansion in Cigarettes and maiden positive EBIT in non-Cigarettes FMCG segment."
"Cigarettes volume up ~2.5 percent plus, partially aided by inventory filling prior to budget. This is in contrast to its peers which lost double digit volumes in FY13. Despite ~16-17 percent price hikes taken by ITC post budget, 1QFY14 volume remained unperturbed so far, as per channel checks. As expected, 64mm is gaining good traction and aiding volume growth without impacting margins. Non-Cigarettes FMCG business posted strong sales growth of 26 percent aided by low teens volume growth. It also reported its first ever positive EBIT at INR119m. While quarterly fluctuations could continue, we believe the segment is well-poised to turn profitable on an annual basis. Agri business posted 31 percent revenue growth led by leaf tobacco exports but margins declined 60bp. Hotels continued to post anemic performance - 10.4 percent revenue growth, 51 percent EBIT decline - due to higher supply of rooms and weak macro environment. Paper segment reported 9.4 percent revenue growth, while EBIT declined 4 percent due to higher input costs. FY13 highlights: P&L: Sales, EBITDA and PAT were up 19.4 percent, 20 percent and 20.4 percent respectively. Cigarettes EBIT for the year up 20.5 percent."
"We expect ITC's premium valuations to sustain due to best earnings visibility in the sector led by robust cigarette business performance and improving profitability in other FMCG business. Maintain Buy with a revised target price of INR360 (increase target P/E to 28x to reflect FMCG other break-even). While we remain cautious on the sector due to peak valuations amidst moderation in volumes, our relative preference for ITC as the top pick stays," says Motilal Oswal research report.
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