Prabhudas Lilladher is bullish on ITC has recommended buy rating on the stock with a target price of Rs 251 in its research report dated June 27, 2020.
Prabhudas Lilladher's research report on ITC
ITC’s 4Q20 cigarette volume decline of 11% disappointed whereas 160bps margin expansion for FY20 in FMCG business was a big positive. Although 1Q is likely to show significant pressure due to washout in April across Cigarettes and Hotels business, expect high teens growth in FMCG due to strong traction in Biscuits, Atta, Noodles and personal hygiene products. We believe cigarette business has picked up well and might achieve exit volumes equal to pre Covid levels, despite 9% price increase in Feb. We expect tepid recovery in Hotels business for next couple of quarters with losses in 1H due to low occupancy and higher fixed cost business.
We believe ITC would be one of the key beneficiary of an uptick in FMCG demand and is inching towards double digit EBIDTA margins over next 2-3 years. ITC trades at 14.4xFY22 EPS, ~60% discount to our coverage universe with 5% dividend yield (80% payout) and 8.9% PBT CAGR over FY20-22. Maintain BUY with target price of Rs251 on SOTP (valuing cigarette business at 15xFY22 EPS).
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