Buy ITC; target of Rs 533: KR Choksey

KR Choksey is bullish on ITC has recommended buy rating on the stock with a target price of Rs 533 in its research report dated October 26, 2023.

Broker Research

October 27, 2023 / 14:58 IST

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KR Choksey's research report on ITC

For Q2FY24, ITC reported consolidated Net sales (net of excise) of INR 1,77,745 Mn, recording a growth of 3.9% YoY/ 3.6% QoQ. Gross Revenue ex-Agri Business (before intersegment revenue) grew by 6.9% YoY/ 1.1% QoQ. For H1FY24, Net sales declined by 1.8% YoY to INR 3,49,389 Mn. On a segmental basis for Q2FY24, Cigarette business revenue grew by 9.1% YoY but was lower by 0.3% QoQ. FMCG- Others revenue grew by 8.4% YoY/ 2.5% QoQ. Hotel revenue growth was strong at 20.5% YoY/ 8.0% QoQ. Agri-business declined by 1.3% YoY/ 30.4% QoQ. Paperboards, Paper & Packaging revenue declined by 9.5% YoY/ 2.4% QoQ. EBITDA for the quarter improved by 3.1% YoY but declined by 3.2% QoQ to INR 64,542 Mn. EBITDA margin contracted by 27 bps YoY/ 255 bps QoQ to 36.3%. Segment EBIT margins declined sequentially for Hotels and Paperboards, Paper & Packaging businesses, with a marginal decline in the FMCG-others segment. For H1FY24, EBITDA improved by 6.4% YoY to INR 1,31,243 Mn while EBITDA margin expanded by 291 bps YoY. PAT was at INR 48,981 Mn for the quarter, higher by 6.0% YoY but lower by 4.1% QoQ. PAT for H1FY24 grew by 11.0% YoY to INR 1,00,030 Mn.

Outlook

We value ITC shares using the SOTP (Sum of the parts) approach applying 15.8x EV/EBITDA (unchanged) on the FY25E EBITDA of the Cigarette business; 19.3x EV/EBITDA (unchanged) on the FY25E EBITDA of the Hotels business; 5.0x EV/EBITDA (reduced from 7.4x earlier) on FY25E EBITDA of Agri-business; 4.3x EV/EBITDA (reduced from 6.5x earlier) on FY25E EBITDA of Paper business and 9.0x EV/Revenue (unchanged) on FY25E Revenue of FMCG business – we arrive at the target price to INR 533 per share (INR 540 earlier); an upside of 23.2% over the CMP. Accordingly, we maintain our “BUY” rating on ITC Ltd shares.

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