Accumulate ITC; target of Rs 530: Prabhudas Lilladher

Prabhudas Lilladher's research report on ITC

ITC reported 5.5% cigarette volume growth and 2.1% ADJ PAT growth (accounting for all adjustments in 3Q24 and 3Q25) in a touch operating environment. Operating environment remained challenging as FMCG business reported 240bps margin decline (19.1% EBIDTA decline) and Paper business reported 30% EBIT decline (460/190bps margin decline YoY/QoQ. ITC has demerged ITC Hotels and 3Q numbers have been adjusted for the same. Consumer Centric businesses have a positive outlook as lower income tax rates will increase demand for both cigarettes and FMCG. We believe margin headwinds will peak out by 4Q25, we expect gradual margin recovery post that. However, given high wood prices and sustained dumping by China and Indonesia, we expect paper margins to remain under pressure for at least 1H26.

Outlook

We cut our FY 25/26/27 estimates by 1.9%/3.2%/3.1% & estimate 10% EPS CAGR over FY25-27. ITC trades at 22.8x FY27 EPS with ROE/ROCE of 31.1/42% and ~80%+ dividend payout. We assign SOTP based target price of Rs530 (Rs536 earlier) based on Dec26 numbers. Retain ACCUMULATE.