Accumulate ITC; target of Rs 365: Prabhudas Lilladher

Prabhudas Lilladher's research report on ITC

We increase our FY23/FY24/FY25 EPS by 3.2%/4.5%/4.5% and target price to Rs365 (Rs340 earlier) and maintain our Accumulate rating. ITC posted encouraging performance with ~20.5% cigarette volume growth and margin expansion across cigarettes, paperboard and hotels business. Near term outlook remains positive given 1) positive cigarette volume traction in a stable tax regime 2) strong pricing and benefits of back ward integration in Paper and paper board in near term 3) structural recovery with robust outlook in ARR and occupancy levels in Hotels and 4) sustained growth across segments in FMCG with margin expansion likely from 3Q/4Q23.

Outlook

While near term outlook is strong, we expect slowdown in growth post FY23 given high base of current year. ITC trades at 21.0x Dec’24 EPS with 11.8% EPS CAGR over FY22-25. We note ROE/ ROCE of 29%/38% and ~80%+ dividend payout are positives. We expect incremental returns to accrue in a more calibrated manner. Any punitive increase in cigarette taxes is a key risk to our call. Retain Accumulate

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ITC - 211022 - prabhu