Prabhudas Lilladher is bullish on ITC has recommended buy rating on the stock with a target price of Rs 262 in its research report dated July 24, 2020.
Prabhudas Lilladher's research report on ITC
ITC PAT beat has been led by better than expected performance in Cigarettes, Agri and Paperboard business and 44% growth in other income. FMCG story remains intact with 34% sales growth and 170bps margin expansion led by segments like Atta, Biscuits, Noodles, Dairy and Hygiene products. Cigarette business is expected to report improved nos as June exit sale show recovery close to Pre Covid sales. Hotels business is expected to remain under significant pressure in near term with poor chance of being in black for next 1-2 quarters. We believe ITC would be one of the key beneficiary of an uptick in consumer demand and is inching towards double digit EBIDTA margins in FMCG business over next 2-3 years. ITC trades at 14.0x Sept22 EPS, ~60% discount to our coverage universe with 5% dividend yield (80% payout) and 7.1% PBT CAGR over FY20-23.
Maintain BUY with target price of Rs262 on SOTP (valuing cigarette business at 15xSept EPS, 58% of SOTP value). Significant re-rating depends upon reduced aversion to tobacco stocks globally and clarity on SUTI stake sale.
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