Reduce ITC; target Rs 373: Kotak Securities

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26 Aug, 2025 12:21

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Kotak Securities' report on ITC

"The government has sought public opinion on several proposed changes to the Cigarettes and Other Tobacco Products Act, including changes on sales of loose cigarettes, raising minimum age for purchase of tobacco products. This follows prior news-flow that indicated that the government would like to have wider discussion and would not take the ordinance route for the changes. However, the emergence of proposals is rather quick following the assurance last month. Incrementally, the news-flow is negative for ITC; we revert to a negative stance on ITC, as we cut our price target to Rs 373 (27X FY16E PER, cut from Rs 387 earlier), on concerns of structural negatives for the cigarette industry."

"ITC is likely to report weak growth in the coming quarter, on the back of 6% decline in cigarette volumes. The stock currently trades at 26x PER FY16E, at a significant discount to FMCG peers (32-35x PER FY16E for domestic peers, 40- 45x PER FY16E for MNC FMCG players), given that ITC's exposure to commodity prices is lower. ITC stock remains vulnerable to further hikes in excise duties in the upcoming budget."

"We would expect ITC's valuations to remain subdued in the near-term, given the above. Incrementally, we think that the news reported yesterday is a negative for the stock, and places limits on upsides. We downgrade ITC to REDUCE, as we cut our price target to Rs 373 (Rs 387 earlier), on greater probability of changes to the COTPA", says Kotak Securities research report.

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