Neutral ITC; target of Rs 240: Motilal Oswal

Motilal Oswal's research report on ITC

Tapering in-home consumption and sharp commodity cost inflation could affect strong EBIT growth in the Other FMCG segment, preventing the contribution of Cigarettes in overall EBIT to decline much (likely to reduce to ~80% in FY23E which is still within its ten-year range of 80-86%). Cigarette volumes for ITC and even other players globally have been on a declining trend, given the increased health consciousness among consumers over the last decade. With the government having recently (Oct'21) set up an expert panel tasked with preparing a comprehensive tax policy proposal for all forms of tobacco from a public health perspective, the overhang of a policy change that may affect cigarette volumes remains on the stock. The rumored demerger of ITC Infotech, even at INR200-250b, is only 6-8% of ITC's current market capitalization and is partly factored in the price already. In our opinion, it does not portend demerger of other FMCG or the Hotels business in the near term, nor does it reduce the dependence on its Cigarette EBIT.

Outlook

We value ITC at 15x Dec'23E EPS and maintain our TP of INR240/share and our Neutral rating.