Buy ITC; target of Rs 535: Motilal Oswal

Motilal Oswal's research report on ITC

ITC's 2QFY24 results were in line with our estimates. The cigarette business posted ~4% YoY volume growth in 2QFY24 vs. our estimate of +6%. With no material increase in the Cigarette GST/National Calamities Duty, the volume growth outlook remains healthy. However, the near-term margin would remain under pressure due to cost inflation. ITC has posted only 8.3% revenue growth in the Other FMCG business due to subdued demand. It also faces heightened competition from local and regional players like the other large FMCG companies, in the backdrop of commodity price deflation.  The Agri business, excluding wheat and rice exports, delivered a healthy performance driven by value-added agri and leaf tobacco. The Paper segment was hit by demand issues, competition from China, lower pulp prices, and higher input costs. However, there were signs of revival towards the end of the quarter. The Hotels segment reported a robust performance despite the flat occupancy YoY due to renovations and relatively smaller number of wedding dates.

Outlook

We retain our BUY rating on ITC as we believe its earnings visibility remains better than that of peers. Our TP of INR535 is based on 28x FY25E EPS.