Buy ITC; target of Rs 225: ICICI Direct

ICICI Direct is bullish on ITC has recommended buy rating on the stock with a target price of Rs 225 in its research report dated July 25, 2020.

Broker Research

July 28, 2020 / 08:37 IST

26 Aug, 2025 12:21

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ICICI Direct's research report on ITC

ITC reported 17.4% decline in sales with cigarettes revenues seeing de-growth of 29.1%. The volume dip of 40% was better than our expectation given 45 days business loss. We believe trade (distributor, retailers) inventory would have depleted during lockdown despite retail shops staying closed. Preferred pack buying over loose cigarettes also helped restore volumes. These factors would have helped company to re-fill trade pipeline given manufacturing & supply chain operations normalised in June. The trade normally holds 14 days inventory. Comparable FMCG sales grew 12.2% with strong demand in staples, packages foods & hygiene product and steep decline in discretionary & stationary businesses. Operating margins contracted 1184 bps mainly impacted by negative operating leverage & excise hike earlier in budget. Net profit de-grew 26.2%.

Outlook

With the end of capex cycle in most businesses (except FMCG), we believe capital allocation has been rationalised. With more than Rs 20,000 crore of cash & liquid investment and consistent free cash flow generation of Rs 10,000-12000 crore, we expect Rs 20/share including special dividend in FY21E. We value the stock on SOTP basis valuing cigarette business at 14x PE & FMCG business at 5x price to sales with a target price of Rs 250/share.