We believe an improving growth trajectory in FMCG segment and calibrated price/volume strategies in its core cigarette business remain key catalysts to sustain a healthy growth momentum going ahead. Notwithstanding punitive taxation we believe ITC trades at inexpensive valuations (22x Sept21E which is at a discount to FMCG Index P/E) and undemanding expectations gives us comfort on earnings delivery over the long term. We maintain “BUY” with unchanged TP of Rs. 297 based on Sept21E. Key risk to our call is rise in competitive intensity, adverse government regulation/steep rise in cigarette taxation and SUUTI stake sale overhang.
ITC has a strong margin profile with EBITDA & PAT margin of 38.5% & 27.7%, respectively, as on FY19. While overall RoCE is at 30.8%, cash cow cigarettes business enjoys RoCE of 200%+ due to superior pricing power and low capital intensity. High cash generation has enabled ITC to invest aggressively in other fast growing businesses and thereby diversify into non-stringent segments. ITC is trading at a P/E of 18x on FY21E earnings, which is at a 60% discount to its FMCG peers. Though ITC is a diversified play with investment even in other businesses, given attractive valuations, there is room for significant upside for the company. We continue to maintain our BUY rating on the stock with a target price of Rs 320/share.
ITC clocked in-line performance, with no deceleration vs. 1Q (most consumer cos were impacted by slowdown and floods). Cig rev/vol/EBIT growth of 6/3/7.4% was steady. FMCG and Hotels outperformed with rev/EBITDA growth of 6.5/39% and 18/37%. ITC’s earnings growth (ex-corp tax benefits) of 10% has been steady over the last 8 quarters, still stock has been de-rated. We believe de-rating is unwarranted when the co is consistently showing quality earnings. We value ITC on SoTP basis (link to table) and arrive at a TP of Rs 368 (implied P/E of 25x). Maintain BUY.
Cigarette business EBIT margin was higher by 100bps to 72.2%. FMCG-Other business continued to deliver improvement in margins despite stepped up marketing investments, gestation and start-up costs of new categories / new facilities. Paper & Paperboards business also showed improvement in margins largely led by better mix while Agri and Hotels business margins were down YoY. Agri business results were impacted by subdued demand for leaf tobacco in international markets, depreciation in currencies of competing origins and adverse business mix. Hotels segment results include the impact of additional depreciation pertaining to new properties. We had recently (post the change in corporate tax rate) upgraded the stock to Buy and we continue to maintain it with a TP of Rs300, indicating an upside of 21% from the CMP.
ITC has posted another steady quarter with 3% cigarette volume growth in a challenging environment. Overall business momentum is sustained with 6.5% comparable FMCG growth, strong margin outlook in paperboards and sustained margin expansion in FMCG business. Uptick in consumer demand holds key to volume recovery in FMCG even as ITC is gradually inching towards double digit EBIDTA margins over next 3-5 years. Paperboard business is in fine fettle given gains from steady prices and benign input costs. Hotels ARR and occupancy indicates steady improvement in industry dynamics. ITC will gain from deferred tax liability of Rs10.2bn from 2Q to 4Q20. ITC trades at 18.5xFY21 EPS, ~50% discount to our coverage universe with 3% dividend yield and 10.5% PBT CAGR over FY19-22. Risk reward remains favorable, although uncertainty on cigarette taxation remains a drag.Retain “Buy” with SOTP based target price of Rs344.
Valuation: We have broadly maintained our earnings estimates for FY2020 and FY2021. Though revenue is expected to grow in single digits, the expansion in OPM, higher other income and reduction in the corporate tax would result in strong double digit earning growth in FY2020. ITC continues to trade at a discounted valuation of 18.1x its FY2021E earnings, lower than some large-cap FMCG companies. We maintain our Buy recommendation on the stock with an unchanged price target (PT) of Rs. 297.
The company’s leadership position in the cigarettes market and additionally new innovative product launches (especially in FMCG - others and Agri business) should drive the value in FY20-21. However, given the impact of higher tax regime and illegal trade activities on cigarettes division and weak FMCG industry demand, we downgrade the stock to HOLD with a revised target price of Rs. 252 based on sum of the parts (SOTP) valuation methodology.
We have reduced our earnings estimates by 3.6% and 5.1%, respectively, for FY2020E and FY2021E, to factor in slower growth in the core cigarette business. ITC continues to trade at a discounted valuation of 21.5x its FY2021E earnings, which is lower than some of the large- cap FMCG companies. The company continued its focus on de-risking its business model by making higher investment in businesses such as hotel and non-cigarette FMCG. We maintain our Buy recommendation on the stock with a revised price target of Rs. 325 (valuing the stock at 30x its FY2021E earnings).
We believe an improving volume trajectory and calibrated price actions in its core cigarette business are key catalysts to sustain the growth momentum going ahead. Notwithstanding punitive taxation we believe ITC trades at inexpensive valuations of 20x Mar-21E EPS which is at a discount to FMCG Index P/E valuation) and undemanding expectations gives us comfort on earnings delivery over the long term. Adding to this, improving fundamentals and profitability in the FMCG business will only aid growth momentum. We have a “BUY” rating on ITC Ltd. with a revised TP of Rs. 297 (earlier Rs. 315) based on its FY21E EPS (24x P/E on FY21E earnings). The revision in TP is to factor in the slowdown concerns that could have a bearing on growth.
ITC’s Q1FY20 results were broadly in line with our estimates. The cigarette business posted +3% YoY volume growth, below our estimate of 5%. However, increase in margins in the cigarette business was encouraging. Despite sluggish demand in Q1, ITC’s FMCG business reported a 6.6% increase in topline and 80bps expansion in margin. We have maintained our FY20E and FY21E EPS estimates at ` 11.4 and ` 12.2, respectively. In our view, the stock is trading at a steep discount to peers and is an attractive stock. We value the stock at 26x PE, with a TP of ` 320. Maintain Buy. In volatile market conditions, we believe that there may be some pressure on ITC. Nevertheless, in the long run we maintain a positive view
On an aggregate basis, we do not envisage any revision in our operation earnings and have made slight revisions in our valuation multiples to reflect the slowdown in consumption space. We have maintained Accumulate rating on ITC with a TP of Rs300, indicating an upside of 13% from the CMP.
ITC’s 1Q performance was soft vs. its FY19 show but in-line with FMCG peers. We expect 1Q growth trajectory to replicate over FY20, led by higher base of cig. volume growth and consumption slowdown. We value ITC on SoTP basis and arrive at a TP of Rs 362 (implied P/E of 28x vs. earlier assigned P/E of 32x). We de-rate cigarette business by 10% (EV/EBITDA 18x vs. 20x implied earlier) owing to slower than expected volume growth in the era of stable taxes. Maintain BUY.
Upgrade to Accumulate with unchanged TP of INR 310 We retain our estimates with a 4% CAGR in cigarette volume and ~4% price hike in FY20 to lead to ~10% EBIT growth in cigarettes. We upgrade the stock to Accumulate from Reduce as the stock has corrected by 13.3% in the past three months with an unchanged TP of INR 310 on 24x FY21E P/E.
ITC is likely to face near term headwinds in demand, long term outlook looks promising given sustained innovations new launches in snacking and dairy. Paperboard business is in fine fettle given gains from steady prices and benign input costs. Hotels ARR and occupancy indicates steady improvement in profits, however we are far off from pre 2009 profitability. ITC trades at 21.5xFY21 EPS, ~40% discount to our coverage universe with 2.2% dividend yield. Risk reward remains favorable, although returns might be back ended due to poor visibility on cigarette volumegrowth. Retain “Buy” with SOTP based target price of Rs367 (Rs369 earlier).
We believe an improving volume trajectory and adjudicated price actions in its core cigarette business are key catalysts to sustain a healthy growth momentum going ahead. Notwithstanding punitive taxation we believe ITC trades at a inexpensive valuations (21x Mar-21E EPS; ~40% discount to FMCG Index P/E) and undemanding expectations gives us comfort on earnings delivery over the long term. We maintain “BUY”on ITC with unchanged TP of Rs. 315 based on its FY21E EPS (24x P/E on FY21E earnings).
On an aggregate basis, we do not envisage any revision in our operating estimates and have retained Accumulate rating on ITC with a target price of Rs320 based on SOTP valuation, indicating an upside of 11% from the CMP.
Volume growth improvement continues; Maintain Buy.ITC’s Q4FY19 results were marginally ahead of our estimates. The cigarette business posted +9% volume growth, which was ahead of our estimate of 7%. However, decline in margins in the cigarette business is a cause for concern. Despite sluggish demand in Q4, ITC’s FMCG business delivered 7.3% increase in top-line and 100bps expansion in margin, was encouraging. We have maintained our FY20E and FY21E EPS estimates at ` 11.2 and ` 12.2, respectively. In our view, the stock is trading at a steep discount to peers and is an attractive bet. We value the stock at 26x PE, to arrive at a TP of ` 320. Maintain Buy. In volatile market conditions we believe that there would be some pressure on stock. Nevertheless, in the long run we maintain positive view on ITC.
Broadly maintained earnings estimates; Maintain Buy with unchanged PT of Rs. 347: We have broadly maintained our earnings estimates for FY2020 and FY2021 and we expect revenues and earnings to clock a CAGR of 12% each over FY2019-21. the company’s focus on become a diversified play by investing higher in businesses such as the Non-cigarette FMCG and Hotel augurs well for the company in long run. ITC is currently trading at 23x its FY2021E earnings, at a stark discount to some of the large FMCG stocks. In view of its steady performance in the core cigarette business and discounted valuations we maintain our Buy recommendation on the stock with an unchanged price target (PT) of Rs. 347.
ITC’s 4Q/FY19 performance was robust vs. its delivery over FY15-18. Cigarette volume growth has returned owing to a stable tax regime, which validates our thesis that ITC’s performance will improve as affordability returns. We aren’t too perturbed with near term margin pressure, as cigarette biz commands the highest margins across industries (volumes matter). We maintain BUY and value ITC on FY21E EPS at 32x, arriving at a TP of Rs 398.
ITC reported yet another steady quarter with ~7.5% cigarette volume growth and sustained expansion in margins across FMCG and Paperboards business. Cigarette demand outlook remains positive, sans any sharp increase in GST rates in coming months. FMCG business faces near term demand headwinds, however long term trajectory of double digit topline growth, category expansion and steady increase in margins looks intact (108bps EBIT margin expansion in FY19, target of double digit margins in 5 years) post restructuring of lifestyle retailing business. Paperboard business is in fine fettle given gains from steady prices and benign input costs. Hotels ARR and occupancy indicates steady improvement in profits, however we are far off from pre 2009 profitability. ITC trades at 22.7xFY21 EPS, 35-40% discount to our coverage universe and 2% dividend yield limits downside in the stock. We believe that stable cigarette taxation regime can re-rate the stock. Retain “Buy” with SOTP based target price of Rs369 (Rs364 earlier).