Hold ITC; target of Rs 247: R K Global

R K Global has recommended hold rating on ITC with a target of Rs 247, in its May 28, 2012 research report.

“ITC Q4FY’12 results came in ahead of our expectations (~9% and ~12% variance) both on revenues and profits. The key to ITC's stock performance in our view is earning resilience and strength of relativity. Despite the recent round of taxation hikes, which effectively raised the excise duty on cigarettes by 21%, we forecast that ITC will still be able to register cigarette EBIT growth of ~15% in FY’13E even with an assumption of zero volume growth for the year. But we still remained shorter from our words.”

“The company reported a very stable ~25% YoY growth at Rs68,580 mn for the Q4FY’12 in comparison to our estimates of Rs62,930 mn, despite slackening volume downturn in cigarettes (contributes ~83% of the total volume). Though, cigarettes division continues to drive ITC, accounting for half of total revenues (Rs32,490 mn) but revenues came lower than our expected figure of Rs36,251 mn. In the Q4FY’12 while, net cigarette sales were up ~17% to Rs32,490 mn, margin improved 233 bps to ~31% over ~5-16% price hikes, which was a great positive. Hotels division was, however, a drag, with net sales falling ~5% and profit down ~17%. ITC's EBIT loss in other FMCG business narrowed to Rs160 mn from Rs680 mn. Agri-business saw tremendous growth at ~23% YoY at Rs14,140 mn, while paperboards division saw a fall by ~5% YoY to Rs9,790 mn.”

“We believe company's cigarette business is poised for ~3-4% volume growth driven by its already hiked prices. Moreover, lower-than-expected FMCG loss; it is in line to achieve breakeven by Q3FY’13E (expected), adds confidence. At CMP, the stock trades at a **P/E of ~28.3x and ***P/BV of ~8.5x of FY’13E EPS and BVPS. We remain on our earlier stance of HOLD on the stock, as we believe up-side is limited as triggers are priced in already. We re-value our TP to Rs247 from Rs226 (expected upside potential of ~5.1% from CMP), factoring over a P/E of ~29.8x and P/BVPS of ~9.0x, using FY’13E EPS and BVPS of Rs8.3 and Rs27.5 respectively,” says R K Global research report.   

Non-Institutions holding more than 90% in Indian cos

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