Accumulate ITC; target of Rs 275: Prabhudas Lilladher

ITC has reported 3% volume growth in cigarettes in a tough environment post 10%

excise duty increase and implementation of 85% pictorial warnings. ITC is playing its brand portfolio in 64mm which is now 30% of its volumes. We believe overlapping price points and similar brand experience will continue to provide flip to volumes in the 64mm segment. We believe that 50bps margin expansion despite mix change is positive and indicates further increase in sales growth and profitability, sans increase in tax rate under GST. We are increasing cigarette volume growth estimates from to 3% for FY17 and 4.5% for FY18. Our profit growth estimates are unchanged due to higher employee cost due to ESOP’s under IND AS. Non‐cigarette businesses have mixed outlook, given headwinds in rural demand, tourist flow and competition in Hotels and impact of increased Chinese dumping in paperboard although increase in leaf tobacco prices is positive. Risk reward looks favourable, given that 1) ITC has been biggest underperformer in our consumer universe in past 3 years 2) it trades at a steep discount to consumer names. Sustained double digit EBIT growth in cigarettes and recovery in volumes can re‐rate the stock. Retain Accumulate.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.