Emkay Global Financial's report on ITC
Q2 performance was slightly ahead of estimates, with PAT growth of 14%. Cigarette sales/EBIT grew 10% yoy, recovering to 95% of pre-Covid levels. FMCG grew 3% yoy on high comparables (2-year CAGR 11%) and maintained 10% EBITDA margins. Cigarette recovery appears healthy with exit volumes at near pre-Covid. A further increase in mobility and ITC’s initiatives on portfolio expansion should drive a healthy recovery. However, a stable taxation policy remains key to sustaining steady growth ahead. FMCG sequential trends indicate a likely pick-up in growth in H2 as the base normalizes. Increasing cost pressure may, however, limit margin gains in the immediate term. Other divisions (Hotels/Agri/Paper) saw strong growth (EBIT up 63%), led by Paper/Hotels.
ITC’s IT business has seen strong rise in its profitability (PAT up 70% in H1) and we now value it at Rs12/share. We maintain Buy and arrive at a fair value of Rs270, based on a two-stage DCF growth model with a derived target PE multiple of 17.6x (Dec’23E EPS).
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