Motilal Oswal's research report on ITC
Sales growth momentum was better than expected across businesses in 1QFY23. Barring the Agri business, where the ban on wheat exports may result in relatively muted growth in subsequent quarters, momentum in other businesses is expected to remain robust. As highlighted in our upgrade to Buy note as well as our FY22 annual report note, strong earnings momentum (16% EPS CAGR over FY22-24 v/s ~5% in the preceding five years) is being led by good performance from Cigarettes in a stable tax environment, healthy recovery in profitability for the Hotels business, and continued good performance from FMCG-Others. Unlike peers, pressure on material costs is far lower. Allied with better capital allocation and continued healthy dividend payout, the path towards high 20s or early 30s RoE is visible. We maintain our Buy rating.
We maintain our earlier assigned 21x EPS multiple, a 65% premium to its global peer average, and roll forward to Jun’24 earnings The stock has done well, with gains of ~17% since our upgrade to Buy in Jun’22. We see scope for further upside, based on a healthy earnings outlook. We maintain our Buy rating.
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