HSBC says ITC a 'winner'; brokerages upgrade target prices

NEW DELHI: HSBC has upgraded ITC Ltd to "overweight" from "neutral", while maintaining its target price of Rs 400, citing prospects of earnings growth "resilience."


Although HSBC says it expects discretionary spending in India to remain "lacklustre" amid a "challenging" economic environment, it says the recent correction in ITC makes it attractive.

At 09:50 a.m.; ITC shares were trading 1.2 per cent higher at Rs 329.30, after falling 11.6 per cent in the previous two weeks.

"Our strategy is to pick long term winners that still build in reasonable growth expectations and offer earnings growth resilience in this uncertain economic climate," HSBC said.

Post the 1QFY14 earnings, as much as seven brokerages have raised their target prices for ITC citing robust growth with atleast three of them keeping it over Rs 400.

For 1QFY2014, ITC posted a robust 18.1 per cent YoY growth in its net profit to Rs 1,892 crore, in-line with analyst estimates. The healthy performance on the bottom-line front is attributable to the healthy 237 bps YoY expansion in OPM even as top-line came in below estimates.

"We expect ITC to report a top-line and bottom-line CAGR of 16.2 per cent and 19.2 per cent respectively over FY2013-15E, driven by the company's diversified business model and ability to invest in growing businesses," Angel Broking said in a note.

At the current market price, the stock is trading at 27.6x FY2015E EPS. The brokerage firm maintains a 'Neutral' rating on the stock.

The FMCG business grew by 18 per cent in this quarter which was way lower than the 25 per cent run-rate seen last year. The segment also posted a loss of Rs 180 mn after posting a profit of Rs110 mn last quarter.

"We don't see this is much of a disappointment since the company is currently in the phase of launching new products in both foods and personal care which require heavy brand investments or ad-spends," Sbicap Securities said in a note.

"As per the management the segment will be in the money by the end of F14. We reiterate our strong conviction about ITC as it provides strong earnings visibility as 65% of sales and 84% of profits is derived from cigs in which the company has strong pricing power," added the report.

Here is list of recommendation from various brokerage firm which have raised their target price post ITC Q1 results: