Buy ITC; target of Rs 538: Prabhudas Lilladher

Prabhudas Lilladher is bullish on ITC has recommended buy rating on the stock with a target price of Rs 538 in its research report dated May 22, 2025.

Broker Research

May 23, 2025 / 13:25 IST

buy

26 Aug, 2025 12:21

Volume

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Prabhudas Lilladher's research report on ITC

We are upgrading ITC from Accumulate to BUY as we expect current margin/growth pressures to subside post 1H26. ITC is suffering margin pressure in cigarettes (high leaf tobacco prices and volume focused strategy), Paper (High wood prices and dumping) and FMCG (Tepid volumes, high input costs and hit in stationary business). However, we expect the scenario to change as leaf tobacco prices have started softening in current season, new wood supplies, integration of century paper and bottomed out margins (~40% of normal levels) and expected recovery in demand margins in FMCG business. 4Q cigarette volume growth of 5% with QoQ margin improvement reinforces success of volume driven strategy. FMCG business has shown resilience, and we expect ITC to be more aggressive in new acquisitions than in the recent past which should push growth. Nicotine exports in leaf tobacco have started which should support margin recovery in Agri business.

Outlook

We make a change of -3.4/1.2% to our estimates for FY26/27 and estimate 11% PAT CAGR over FY25-27. We believe ITC offers a favorable risk reward at 21.4xFY27 EPS and a dividend yield of 3.5%. We assign SOTP based target price of Rs538 (Rs528 earlier). Upgrade to BUY.

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