Accumulate ITC; target of Rs 489: Prabhudas Lilladher

Accumulate

Prabhudas Lilladher's research report on ITC

ITC EBIDTA de-grew by 3.2% due to 1.6% decline in cigarette volumes and 50% decline in paperboard profitability. FMCG EBIDTA margins of 11% (24.1% EBIT growth) and 57.1% EBIT growth in hotels have been positive. 3Q reported PAT includes onetime tax refund of Rs4.68bn excluding which PAT increased by just 1.6%. Demand scenario remains mixed with mass segment under pressure across cigarettes and FMCG. We expect 4.3/4% cigarette volume growth in FY25/26 in a steady state while FMCG will continue to expand margins by 100bps. Although Hotels have a high base, revival of business and foreign tourist flow will cushion the performance in FY25. Outlook on Paper remains muted in near term given high input costs of wood and pressure on end product prices due to Chinese dumping. We are largely retaining our estimates and estimate 7.5% EPS CAGR over FY24-26. We believe FMCG and IT services will add significant shareholder value over coming few years.

Outlook

ITC trades at 23.4x FY26 EPS with ROE/ROCE of 31.4/41.7% and ~80%+ dividend payout. We assign SOTP based target price of Rs489 (Rs487 earlier) as we roll forward to Dec25. We expect returns to be back ended given tepid EPS growth despite favorable valuations. Retain Accumulate.

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ITC - 3012024 - prabhu