Buy ITC; target of Rs 550: Motilal Oswal

Motilal Oswal's research report on ITC

ITC delivered consolidated revenue growth (ex-hotel business) of 9% YoY (beat) in 3QFY25, mainly led by the cigarette business. EBITDA grew by 2% YoY to INR63.6b. APAT declined 7% YoY to INR48b. Gross cigarette revenue rose 8% (est. 7%). Cigarette volume growth was better than expected at ~6% (vs. est. 4%), partially supported by a favorable base (-2% in 3QFY24). The premium cigarette segment continued to outperform. Cigarette’s EBIT growth was slow at 5% YoY (est. 6% YoY). EBIT margin contracted 180bp YoY to 58.0%, partially impacted by the sharp escalation in the leaf tobacco cost. The FMCG segment revenue grew 4% (5% ex-notebooks), impacted by food and edible oil inflation. This was partially offset by the pricing adjustments, improved product mix, and cost efficiencies. Notebooks were impacted by a high base effect and local competition, driven by a sharp decline in paper prices. EBIT margin contracted 240bp to 5.9% (est. 7.7%), marking a 10- quarter low. This was due to the rising competition, higher commodity costs, and weak demand, which led to a 26% YoY EBIT decline.

Outlook

We cut our EPS estimates by 4% for FY25 and 5% for FY26, mainly due to the impact of the hotel business demerger w.e.f. Jan’25. We reiterate our BUY rating on ITC with our SOTP-based TP of INR550 (implied 30x Dec’26E P/E).

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