Prabhudas Lilladher is bullish on ITC and has recommended accumulate rating on the stock with a target of Rs 397 in its October 31, 2014 research report.
Prabhudas Lilladher`s research report on ITC
“ITC reported Adj. PAT of Rs24.2bn mainly due to 19.5% EBIT growth in the cigarettes business as non‐cigarette EBIT increased by 3.8% only. Cigarette volumes declined ~4% across segments, ranging from 64mm to RSFT and KSFT (~‐2.5% in Q1FY15) as ITC increased prices by 15% (40% in past 18 months) to neutralise the impact of higher excise duty. FMCG sales increased 11.9% in a challenging scenario; higher input costs curtailed margin expansion. We expect improved profitability in FMCG due to benign input costs. Hotel recovery will be gradual, given the economic slowdown. We believe ITC is strong headwinds due to hawkish stance of GOI regarding change in norms like 1) new pictorial warnings on cigarettes 2) sale of loose cigarettes 3) point of sale advertising and 4) increase in excise duty in next budget. Notwithstanding steady profit growth, we expect underperformance to continue in the near term. We value the stock at Rs397 based on Sept2016 EPS, an upside of 11.8%. Retain ‘Accumulate’ on the stock.”
“Cigarette business reported 19.5% EBIT growth with 300bps EBIT margin expansion even as volumes declined by ~4% due to price increase following 22% weighted average increase in excise duty and VAT. Volume decline was broad‐based and across segments like 64mm, RSFT and KSFT. Imposition of new pictorial warnings, fear of ban on sale of loose cigarettes and point of sale advertising will continue to remain an overhang in the run‐up to the 2015 budget, despite steady profit growth. FMCG sales growth slowed down to 11.9%; it has reported a loss of Rs103m even as margins improved by 10bps only. Hotels reported an EBIT loss of Rs96m (Rs133.8m impact of change in method of depreciation) sluggish economy and higher inventory impacted ARR and occupancy levels. Paperboard sales grew by 8.9%, EBIT increased by 9.7% as margins increased by 20bps. Agri business sales increased 16%; EBIT increased by 4.8% due to higher proportion of low margin commodity exports. Net sales have increased by 14.8% to Rs90.2bn. Gross margins have declined by 150bps due to higher proportion of low margin Agri products in total sales. EBITDA margin was up by 30bps YoY to 38.7% due to 30bps decline in staff cost and 150bps decline in Other expenditure. EBITDA increased by 15.6% to Rs34.9bn. PBT increased by 17.8% to Rs35.8bn as increase in depreciation by 10.1% YoY was more than neutralised by 44.7% increase in other income. Adj. PAT increased by 15.6% to Rs24.2bn due to 130bps increase in tax rate to 32.3%.Accumulate ITC with a target of Rs 397,” says Prabhudas Lilladher research report.
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