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Buy ITC; target of Rs 325: KR Choksey

KR Choksey is bullish on ITC has recommended buy rating on the stock with a target price of Rs 325 in its research report dated July 01, 2022.

July 04, 2022 / 03:44 PM IST
The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

 
 
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KR Choksey's research report on ITC

ITC’s FMCG portfolio’s consumer spend exceeded INR 240,000 Mn annually with reach of over 200 million households in India. The portfolio is built with focus on strengthening core brands, entering adjacent segments through great brands and entering categories that can fuel future growth. ITC’s Agri business is one of India’s largest exporters of Agri commodities. It sources over 4 Mn tonnes of agricultural produce from 22 states. The business is scaling up its VAAP (Value-added Agri products) portfolio comprising of Spices, Coffee, Frozen Marine Products and Processed Fruits amongst others for domestic and export markets. The paperboards and packaging business is a pioneer in sustainable packaging and a leader in the value-added paperboards segment. The company has multiple brands like Aashirvaad, Sunfeast, Classmate and Mangaldeep that are leaders in their respective segments. The company launched several variants in the cigarette segment to meet the evolving needs of its consumers. These launches include Classic Connect, Gold Flake Indie Mint, Gold Flake Neo SMART Filter, Wills Protech, Capstan Excel, American Club Smash, Gold Flake Kings Mixpod, Wave Boss and Flake Nova.

Outlook

We value ITC shares using SOTP (Sum of the parts) approach implying 12.2x EV/EBITDA on FY24E EBITDA of Cigarette business; 19.4x EV/EBITDA on FY24E EBITDA of Hotel business; an average 6.3x EV/EBITDA on FY24E EBITDA of Agri business; 5.6x EV/EBITDA on FY24E EBITDA of Paper business and 7.4x EV/Revenue on FY24E Revenue of FMCG business – to arrive at our target price to INR 325 per share. Accordingly, we maintain our “BUY” rating on ITC Ltd shares.