Hold ITC; target of Rs 317: ICICI Direct

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26 Aug, 2025 12:21

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ICICI Direct's research report on ITC

In the review meeting of the GST Council on tax rates, the council has raised the specific cess on cigarettes in all categories below 75 mm. Also, it has sharply increase d the ad - valorem rate in above 75 mm category.  We believe this would increase the blended tax incidence per stick from | 3.2 to | 3.9, resulting in more than | 5000 crore excess tax burden for the industry compare d to earlier GST rates or | 3800 crore excess burden compared to pre - GST regime. We believe ITC would need to take a price hike of ~12% to pass on the additional tax burden. We change our  volume estimates from  earlier  4 % to  1 %  for  FY18E and simultaneously  change our realisation  estimate  from  5 % to  12 %. For FY19E also, we are revising our volume estimates down wards from 4% to 1%.

Outlook
Post the revision in rates, we are factoring in 1 .0% volume growth f o r both FY18 E and FY19E. Further, to pass on the tax burden, we estimate that ITC would have to take 12% and 8% price hike for FY18E and FY19E, respectively. Our revenue estimate is, thus, getting revised marginally upwards by 2.2% for FY18E and remains flat for FY19E. However, with increased tax incidence, our PAT estimates are getting revised down wards by 13.6% and 14.6% for FY18E and FY19E, respectively.  In a scenario where volume growth would continue to remain under pressure, we assign lower multiple to cigarettes business of 30x against 35x earlier. We  value the cigarettes business at |  247 ( PE multiple of  3 0 x FY19E EPS ) ,  FMCG at | 44 (4x MCap/sales FY19E ), paperboards at | 4 (3x FY19E  EV/EBITDA), agri - business at |  6 (3x P/BV FY19E) and hotels at |  7 ( 2x  EV/room FY19E) and also add the cash per share of | 1 0 . We downgrade ITC to HOLD with a target price of | 317.
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