Accumulate ITC; target of Rs 478: Prabhudas Lilladher

Prabhudas Lilladher's research report on ITC

ITC reported another quarter of strong growth across segments. Cigarette volume growth for 1Q was ~9.8% supported by stability in taxes, and volume recovery from illicit trade. Outlook remains positive although we expect growth to moderate to mid-single digits in medium term. FMCG growth was ahead of industry and margins got a boost due to improving scale, lower raw material costs and PLI incentives, we expect calibrated margin expansion to sustain in coming years. Hotel outlook is positive (despite planned renovations) due to G20 and revival in business & foreign tourist travel. Paper and Paperboard segment has started showing QoQ margin expansion and margins are expected to sustain around current levels. ITC has announced swap ratio of 1:10 for ITC Hotels demerger which is likely to be completed over next 15 months, it will improve ROCE and cash flows.

Outlook

Near term outlook remains strong, we estimate 10.7% EPS CAGR over FY23- 25. ITC trades at 25.3x FY25 EPS with ROE/ROCE of 30%+/35%+ and ~80%+ dividend payout. Retain Accumulate.