Buy ITC; target of Rs 415: Sharekhan

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26 Aug, 2025 12:21

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Sharekhan`s research report on ITC“In Q2FY2015 ITC’s revenues grew by 15% YoY to Rs9,023.7 crore, largely driven by a 14% growth in the core cigarette business and a 16% growth in the agri income. The cigarette sales volume declined by 4% in Q2FY2015 (against our expectation of a 3% decline). During the quarter the hotel business showed the first signs of a revival with the revenues growing by 6% entirely driven by an improvement in the occupancies. The OPM stood almost flat at 38.7% well supported by a strong improvement of 305BPS in the cigarette business’ margin to 68% (largely driven by price hikes undertaken in the past few months).""The cigarette sales volumes will remain under pressure while the price increases undertaken so far would help the profit of the cigarette business to grow by 15% in the coming quarters. With inflationary pressures receding and consumer sentiment improving in the urban areas, we expect H2FY2015 to be better for ITC’s non-cigarette business in comparison to H1FY2015. Also, the hotel business is expected to post a better operating performance in H1FY2015, which is seasonally strong for the business. We have broadly maintained our estimates for FY2015 and FY2016 (and introduced our FY2017 estimates) in this note. ITC is currently trading at 24x the FY2016E EPS of Rs14.8, which is at a discount to some of the large-cap and mid-cap FMCG stocks. In view of the discounted valuations and better earnings visibility, ITC remains one of our better picks in the FMCG space. We maintain our Buy recommendation on the stock with a rolled-over price target of Rs415 (valuing the stock at 24x FY2017E earnings). The new government at the centre has become aggressive about curbing cigarette consumption in India. Hence, implementation of any stringent measures to curb cigarette consumption will be a key risk to our earnings estimates and rating on the stock,” says Sharekhan research report.

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