Buy ITC: target of Rs 250: Sharekhan

Sharekhan's research repor on ITC

ITC’s Q2FY2021 performance was affected by localised lockdowns in July-August resulting in a 12% decline in volume of core-cigarette business (net sales was down by ~14%). Cigarette sales started recovering from September but yet to reach pre-COVID levels. Non-cigarette FMCG performed strongly, rising by 18.4% led by staples, operating profit grew 66% y-o-y to Rs. 366 crore (margins rose 300 bps to 9.7%). As non-cigarette FMCG business scales up, its OPM is expected to improve further and would remain stable (despite normalisation of sales in some categories in the post-COVID era). Stock trades at discounted valuation of 12.3x its FY2023E EPS, consistent improvement in the non-cigarette FMCG margins along with normalisation of cigarette business would be key re-rating trigger for the stock.

Outlook

We maintain Buy with an unchanged price target of Rs. 250.