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Last Updated : May 23, 2013 12:33 PM IST | Source: Moneycontrol.com

Hold ITC; target of Rs 370: Nirmal Bang

Nirmal Bang has recommended hold rating on ITC with a target of Rs 370, in its May 21, 2013 research report.

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Nirmal Bang`s research report on ITC

"ITC 's fourth quarter net profit rose better than consensus estimates and it was up by 19.4 percent YoY to Rs 1927.9 crores, helped especially by strong growth in its Other FMCG and Agri business. ITC continues to see robust growth in its core cigarettes and other FMCG business, which includes processed foods and personal care products. Although cigarette net revenue growth was slightly weak at 11.5 percent YoY though, a volume growth of ~3 percent took us by surprise. With the new excise duty (up by 26 percent YoY, while effective duty was up by ~20 percent), ITC has managed to report a volume growth of ~3 percent and improvement in EBIT margin by 420bps YoY to 58.3 percent in Q4FY13 despite of taking ~18 percent price hike during the same period. We are of opinion that the volume of cigarettes improved owing to higher sales of >65mm filter category as excise duty on this segment was kept unchanged under Union Budget."

"The Other FMCG business has reported a sales growth of 26 percent YoY aided by low teen volume growth and has achieved first time EBIT positive of Rs. 11.9 crore during the quarter. We believe that the quarterly fluctuation in the business may occur but the company is well on track and poised to achieve full year break-even in FY14E. We are of the view; the success of >65mm cigarette, improvement of RoE in Other FMCG business and strong pricing power, should be key positive for the stock going forward.”

“Standalone Net Sales for Q4FY13 went up by 19.2 percent YoY to Rs. 8180.3 crore and up by 7.3 percent QoQ. The company posted remarkable revenue growth primarily driven by 31.1 percent YoY growth in Agri business, 26 percent YoY growth in Other FMCG business and 11.5 percent YoY growth in Cigarette business. EBITDA increased by 19.6 percent YoY to Rs. 2706.3 crore in Q4FY13 and declined by 5.3 percent QoQ. The Company reported an EBITDA margin of 37.5 percent in Q3FY13, as compared to 38.5 percent in Q3FY12 and 37.6 percent in Q2FY13. The Gross margin declined by 250bps YoY to 56.6 percent in Q4FY13 as gainst 59.1 percent in Q4FY12 and by 310bps QoQ of 59.7 percent in Q3FY13. The company reported a Pat of Rs. 1927.9 crore in Q4FY13 as gaianst Rs. 1614.4 crore in Q4FY12, up by 19.4 percent YoY though it was declined by 6 percent QoQ. The PAT margin stood at 23.6 percent in Q4FY13 as against 23.5 percent in Q4Fy12 and 26.9 percent in Q3FY13."

"We forecast ITC’s sales to rise at a CAGR of 15.1 percent for FY13-15E, with most segments recording relatively steady growth over the next two years. We are positive on ITC due to its strong pricing power, improving return ratios, strong free cash flows and strong earnings growth visibility which is likely to support valuations. We feel that ITC will sustain premium valuation owing to improving profitability in Other FMCG business and steady cigarette EBIT growth going forward. At CMP of Rs. 332 per share, the stock is trading at a PE of 29.9x FY14E & 25.7x FY15E. We maintain "HOLD" rating and our target price of Rs. 370 based on SOTP (FY15E),” says Nirmal Bang research report.  

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First Published on May 23, 2013 12:33 pm