Buy ITC; target of Rs 530: Prabhudas Lilladher

Prabhudas Lilladher's research report on ITC

ITC reported a strong 6.5% volume growth in Cigarettes, ~39% growth in Agri business and sequential uptick in FMCG business(ex-notebooks) even as Paper Business continues to drag growth. ITC’s margin continues to remain under pressure due to high leaf tobacco prices in Cigarettes, high wood prices and dumping (Indonesia and China) in Paper board, elevated commodity costs in FMCG and pricing pressure in stationary due to cheap imported paper.

Outlook

We estimate 8.9% PAT CAGR over FY25-27 post factoring in the demerger of Hotels business but without century paper integration. We believe ITC offers a favorable risk reward at 22.4xFY27 EPS and a dividend yield of 3.7%. We assign SOTP based target price of Rs530 (Rs538 earlier). Retain BUY.