Accumulate ITC; target of Rs 539 Prabhudas Lilladher

Prabhudas Lilladher's research report on ITC

ITC EBIDTA growth missed estimates due to higher than expected margin pressure in Paper business and impact of demand and cost headwinds in FMCG. Cigarette volumes grew by ~3.3% as ITC continued to invest behind brands and go to market initiatives. FMCG business sales grew 7% (ex of stationary) which although lower than previous years, however seems better than most of its FMCG peers. We remain optimistic on cigarette demand and expect further increase in volume growth; margins are unlikely to improve due to higher leaf tobacco prices. FMCG sales are likely to show slow recovery, margin headwinds are likely in near term due to rising RM price of wheat, edible oils etc. Although Hotels have, a high, base, expect better performance in 2H25 due to uptick in seasonal demand. We believe paper margins will continue to face pressure in near term & expect delayed recovery. We cut our FY 25/26/27 estimates by 4.4%/1.3%/0.6% & estimate 10% EPS CAGR over FY25-27 given pressure in Paper margins & tepid FMCG environment.

Outlook

ITC trades at 24.5x Sep’26 EPS with ROE/ROCE of 31.6/41.9% and ~80%+ dividend payout. We assign SOTP based target price of Rs539 (Rs541 earlier) based on Sept26. Retain Accumulate.