Buy ITC; target of Rs 251: Motilal Oswal

Motilal Oswal is bullish on ITC and has recommended buy rating on the stock with a target of Rs 251 in its May 28, 2012 research report.

“ITC's 4QFY12 results were in line with our expectations. Adjusted PAT grew 26% to INR16.1b (v/s our estimate of INR15b), led by higher other income. This marks ITC's 11th consecutive quarter of 20%+ earnings growth. Cigarette volume growth at ~5% was lower than we had anticipated. Margin expanded 95bp; price increases and mix improvement drove profitability, despite VAT increase in several states.”

“FMCG losses declined to a surprising INR167m; margins improved despite a tough input cost environment and faster pace of new launches. Revenue traction was strong at 23%, led by healthy volume growth and healthy offtake across categories. We believe that reversion to specific excise duty is positive, as it reduces the cascading impact of taxes. Ad-valorem excise duty would have resulted in increased excise outgo every time the company raised prices, making margin management difficult. We remain positive on the long-term opportunity in ITC, given sustainable volume growth and strong pricing power in the Cigarette business. We estimate ~17% PAT CAGR over FY12-14. The stock trades at 25x FY13E and 21.2x FY14E EPS. Buy,” says Motilal Oswal research report.   

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