Buy ITC; target of Rs 324:Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on ITCWe are upgrading ITC from Reduce to “Accumulate” given better‐than‐expected recovery in cigarette volumes despite deterioration in sales mix. Q3FY16 results were in line; however, cigarette volume decline of ~4% was better than our and market expectations. 64mm segment has led the volume recovery for ITC and it now accounts for ~18% of volumes even as RSFT and Kings Segment continued to suffer. Although medium term outlook is a function of excise duty in the coming budget, 20% volume decline in the past three years has made the base favourable for future growth. Non‐cigarette businesses have mixed outlook, given headwinds in rural demand, tourist flow and competition in Hotels, Zero duty imports from ASEAN countries in paperboard and currency and demand issues in Agri Business. ITC has declined by 16% since our downgrade in Feb2015 and risk reward looks favourable, given that we are valuing cigarette business at 21xDec2017E, a steep discount to even mid cap consumer names. We upgrade the stock from Reduce to ‘Accumulate’. Steep increase in Excise and VAT (GST) are the key risks to our stock rating. FMCG sales grew 7.1%; EBIT increased 7.7% to Rs188m despite pipeline correction and Chennai floods impacting profitability. Hotels reported an EBIT of Rs258m on 4.5% sales growth as 200bps higher occupancy levels came at the expense of ARR. Paperboard sales increased 5.1%, EBIT increased 12.7% sales mix and lower inputs enabled 130bps margin expansion. Agri sales declined by 7.3%; EBIT declined by 3.1% even as lower commodity exports improved sales mix and enabled 70bps margin expansion. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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