HDFC Securities is bullish on ITC has recommended buy rating on the stock with a target price of Rs 221 in its research report dated June 28, 2020.
HDFC Securities' research report on ITC
ITC’s 4Q was marginally lower than estimates but lockdown impact was not as severe as it was visible in other cos. Net revenue was down by 6% yoy while HUL/Dabur/Colgate/Marico clocked decline of 9/17/7/8% yoy in the domestic business. Cig revenues declined by 6% yoy with ~10% yoy volume dip. FMCG comparable growth of 5% yoy was better than estimate (even better than Britannia’s 2% growth). Recovery in Cig and FMCG in May and June is encouraging. FMCG, Paperboards and Packaging are now operating at 80-85% of normal levels. Co has not witnessed downtrading trend or any meaningful drop-outs of cig consumers due to lockdown. Packaged food enjoyed pantry loading benefits and part of personal care also recovered. Co has good portfolio to capitalise on health and hygiene trend. FCF grew by robust 30% yoy, FCF and dividend yield stands at 7% and 5% in FY20.
We cut EPS estimate by 5% for FY21 to factor impact of extended lockdown. We value ITC on SoTP and arrive at a TP of Rs 221 (implied P/E of 17x). Risk reward remains attractive. Maintain BUY.
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