Buy ITC; target of Rs 494: KR Choksey

KR Choksey's research report on ITC

For Q3FY25, ITC’s revenue grew 9.1% YoY (-5.5% QoQ) to INR 203,500 Mn, largely in line with our estimates (-1%). EBITDA increased 2.4% YoY (- 2.9% QoQ) to INR 63,619 Mn, missed our estimates due to higher-than-expected operating expenses. EBITDA margin contracted by 226bps YoY (+108bps QoQ) to 33.9%. Adj. Net profit declined 8.4% YoY (-3.8% QoQ) to INR 47,314 Mn, missed our estimate primarily due to negative operating leverage and lowerthan-expected other income. We lower our FY26E/27E EPS estimates by 6.1%/7.5% due to the hotel business demerger, weak Q3FY25 performance, soft demand, and inflationary pressures. However, we remain positive on ITC’s long-term outlook, supported by strong cigarette market share, robust FMCG execution, stable taxation, and rural demand recovery. We roll over our valuation to FY27E and adopt the SOTP approach for ITC, applying 13.0x EV/EBITDA to the Cigarette business, 5.0x EV/EBITDA to Agri, 4.0x EV/EBITDA Paper businesses, and 8.0x EV/Revenue to FMCG.

Outlook

Following the ITC Hotels demerger, we shift its valuation from EV/EBITDA to 40% of market capitalization, incorporating a 20% holding discount. Based on this, we revise our target price to INR 494 per share (previously: INR 520) with an upside potential of 15.6% over the CMP, Subsequently, we maintain our BUY rating on ITC Ltd.

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