ICICIdirect.com is bullish on ITC and has recommended buy rating on the stock with a target price of Rs 387 in its research report dated January 01, 2014.
ICICIdirect.com report on ITC
"ITC, after two consecutive years of significant excise hike (~18 percent in FY14E and ~21 percent in FY15E), we expect the hike to moderate to ~10 percent in FY15E and FY16E. Led by ITC’s strong pricing power and premiumisation in the industry, ITC’s margins continued to expand to 64.6 percent (FY14E) from 59.5 percent in FY12. However, volume growth was impacted in FY14E (-4 percent). We believe that with moderation in excise hike, volume growth would revive to 1 percent in FY15E and ~2.5 percent by FY16E. Further, with premiumisation expected to continue its trend (improving economic scenario) and 64 mm to increase its contribution to revenues, we expect EBIT/cigarette to increase to Rs 1.4/cigarette by FY16E against Rs 0.95/cigarette in FY13E."
"With the increasing presence in the FMCG business, we expect FMCG revenue growth to remain healthy at 18.6 percent CAGR in FY13-16E. We expect growth to remain strong led by improving consumer demand in the economy, strengthening market share (noodles, packaged food, biscuits) and entry into new segments (milk and chocolates). Further, with the company’s fruitful expansion in rural India for its FMCG products and efficient sourcing model, we believe the segment would attain breakeven by FY14E and contribute to margins positively from FY15E onwards. We expect paper boards revenues to post healthy growth at 10 percent CAGR FY13-16E aided by new capacity becoming operational by FY15E along with improving margins."
"Though hotel revenues and earnings have been a near term concern, we believe that with the expected implementation of Real Estate Investment Trust (REIT), return ratios from the hotel business could improve significantly. We value ITC on SOTP basis. We value the cigarettes business at Rs 303 (26x FY16E EPS), FMCG at Rs 47 (3x Mcap/sales FY16E), paperboards at Rs 9 (4x EV/EBITDA), agri at Rs 12 (3x P/BV FY16E) and hotels at Rs 5 (1x EV/room FY16E). We also add the cash per share of Rs 11; arriving at a target price of Rs 387. We assign a BUY rating to the stock," says ICICIdirect.com research report.
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