Buy ITC; target of Rs 485: Sharekhan

Sharekhan's research report on ITC

ITC’s Q4FY2023 performance was ahead of our expectation, largely on account of better-than-expected OPM at 38% (expanded 423bps y-o-y), while net revenue came in-line with expectation at Rs. 16,398 crore. Adjusted PAT grew by 20.1% y-o-y to Rs. 5,032.9 crore (vs. expected Rs. 4,774.3 crore). The highlight of the quarter was strong 19% growth in the non-cigarette FMCG business with consistent improvement in the segment’s adjusted EBIDTA margins at ~12% (vs. 9% in Q4FY2022). Cigarette business volume growth stood at 11-12%. We expect ITC’s earnings to post a 14% CAGR over FY2023-FY2025 with consistent volume growth in the cigarette business, high teens growth in the non-cigarette FMCG business, and strong growth in the hotel business.

Outlook

Despite strong run-up in ITC’s stock price in recent times, valuations at 24x/21x its FY2024E/FY2025E EPS look attractive in the backdrop consistent earnings growth visibility and good dividend payout (dividend yield of 3.7%). We maintain our Buy rating with a revised PT of Rs. 485.

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