Buy ITC; target of Rs 535: Motilal Oswal

Motilal Oswal's research report on ITC

Despite the challenges posed by the pandemic, inflation, and taxation, ITC demonstrated better performance, achieving a revenue CAGR of 10% and PAT CAGR of 11.6% over FY18-23. The overall consumption growth in the industry has been better in urban areas than the rural regions. Although there are signs of improvement in rural markets, its sustainability remains uncertain. The premium portfolio is thriving, particularly in urban settings. Non-Cigarette Business Outperformance: The non-cigarette segment outperformed, exhibiting a robust Revenue CAGR of 14% and a remarkable PAT CAGR of 20% over FY18-23. This impressive performance was accompanied by a notable improvement in EBITDA margin contribution, which increased 920bp to 27.3%. Return on Capital Employed (RoCE) doubled, reaching 22% from an initial 11% in FY18.

Outlook

We believe the premium multiples are justified, given its strong visibility over the medium-term and the defensive nature of its business, especially in a volatile macro environment. We reiterate our BUY rating with a TP of INR535, based on 28x FY25E EPS.