Accumulate ITC; target of Rs 519: Prabhudas Lilladher

Prabhudas Lilladher's research report on ITC

ITC EBIDTA grew by 0.7% as margins across Paperboard and Agri dragged overall performance despite 7% Cigarette EBIT growth. FMCG business suffered as low paper prices resulted in local competition in Stationary business while heat wave affected sales of Juices, Instant Noodles and snacks. Demand scenario remains positive with expected recovery in demand for both cigarettes and FMCG. We expect ~4% cigarette volume growth in FY25/26 in a steady state given stable taxation and sustained innovations and distribution led gains. Although Hotels have, a high, base, expect better performance in balance year due to sustained demand. We believe paper margins have bottomed out and expect recovery to set in from 2H. Agri business margins will expand in 2H25 only as higher leaf tobacco get absorbed in the product prices. We cut our FY 25/26 estimates by 1.8%/0.7% & estimate 6.9% EPS CAGR over FY24-26 given marginal improvement in Other Income & pressure in Paper and Agri margins.

Outlook

ITC trades at 26.4x FY26 EPS with ROE/ROCE of 31/41.2% and ~75%+ dividend payout. We assign SOTP based target price of Rs519 (Rs491 earlier) as we roll forward to June26 and increase multiples for cigarettes and FMCG business. Retain Accumulate

For all recommendations report, click here