Brokerage house Nirmal Bang has recommended hold rating on ITC. At CMP of Rs 359 per share, the stock is trading at a PE of 32.4x FY14E & 27.8x FY15E.
Nirmal Bang's report on ITC
"ITC's first quarter net profit was in – line with consensus estimates and it was up by 18.1 percent YoY to Rs 1891.3 crore, helped especially by growth in its Other FMCG and Agri business. The cigarette net revenue growth was slightly weak at 7.1 percent YoY to Rs. 3537.4 crore. However, the cigarette business improved its profitability by 18 percent YoY due to increased focus on premiumization and better revenue mix. However, ITC's non-cigarette FMCG business remained in the red during Q1FY14 despite posting a marginal profit in Q4FY13. The business, however, reduced losses to Rs 18.9 crore in Q1FY14 from Rs 38.8 crore in Q1FY13."
"We believe ITC is well placed to deliver 15.1 percent sales CAGR between FY13-15E, with most segments recording relatively steady growth driven by price increase in cigarettes and continuous traction in foods/personal products. ITC stock has re-rated, rising 24.8 percent ytd (after a 44.6 percent return in CY12), which in our view has been triggered by ITC maintaining an average +18 percent cigarette EBIT growth trajectory in the last nine quarters despite the heavy taxation inflicted on cigarettes last year. But in our view, this multiple expansion now adequately factors in this momentum; hence we do not see a case for further multiple re-rating. At CMP of Rs 359 per share, the stock is trading at a PE of 32.4x FY14E & 27.8x FY15E. The stock has hit our target price of Rs. 370 based on SOTP (FY15E) during the quarter (17th July 2013) however; we are not revising our target price upwards since we see limited upside from these levels. Hold the stock," says Nirmal Bang research report.
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