Buy ITC, target Rs 346: Prabhudas Lilladher

Prabhudas Lilladher has a buy call on ITC Ltd. with a target price of Rs 346.0 . The current market price of ITC Ltd. is Rs 263.8 Time period given by the brokerage is a year when ITC Ltd. price can reach defined target. . ITC Ltd., incorporated in 1910, is a largecap company with a market cap of Rs 321888.28 crore.


Investment rationale by Prabhudas Lilladher
We reiterate BUY on ITC given that the stock is available at 22.4x FY20 EPS (50% discount to large cap consumer names) and offers 2% dividend yield due to FEAR related to cigarette tax increases. However, we expect relatively moderate increase in cigarette taxes in medium term given 1) Rs200bn surplus and robust compensation cess collections in April and May 2018 and 2) 18-40% advalorem component in cigarette GST. We estimate 3% volume growth and double digit EBIT growth in cigarettes given low base and improved product mix. (FY18, 6.6% EBIT growth on 3.3% volume decline). FMCG business is on cusp of sharp improvement in profits (est 2x growth in 3 years) given rising scale and peaked out losses in personal care and Lifestyle retailing. Paperboard business is expected to improve margins given benign input costs, benefits from refurbishment of Décor machine and expected capacity expansion.


We expect higher ARR and occupancy rates to improve profitability in Hotels. Lower production and high prices of leaf tobacco in India will drag Agri business, despite some relief from INR depreciation. Retain “Buy” with SOTP based target price of Rs346.