Buy ITC, target price Rs 285: Anand Rathi

Anand Rathi has given a buy rating to ITC, with a target price of Rs 285. The share price moved down by -1.93 per cent from its previous close of Rs 199.80. The stock’s last traded price is Rs 195.95.

ITC has reported a decline of 7.9 per cent in its consolidated revenue at Rs 1,17,822 million in Q4-FY20 as against Rs 1,27,892 million in Q4-FY19. Revenue decline was mainly due to loss of sales in the last 10 days of March which affected all the segments with cigarettes, FMCG, hotel, agri and paper businesses registering a decline of 4.9 per cent, 2.8 per cent, 6.7 per cent, 10.0 per cent and 5.1 per cent respectively. Cigarettes business registered a volume decline of 12 per cent after factoring in the price hike taken in this segment.

Investment Rationale

On profitability front, the company’s operating margins have improved by 44 basis points to 38.2 per cent at Rs 45,036 million in Q4-FY20 as against 37.8 per cent at Rs 48,322 million in Q4-FY19. The company has reported a growth of 9.1 per cent in its net profit which came in at Rs 38,565 million in Q4-FY20 as against Rs 35,351 million in Q4-FY19.

Free cash flow generation (net of tax and capital expenditure) during the year stood at Rs 11,693 crore, representing a robust growth of 30 per cent over the previous year. The company remains the clear leader in the FMCG industry in terms of annual FCF generation. The brokerage continues to remain positive on the company over medium to longer term perspective and maintains a buy rating on the stock with a revised target price of Rs 285 per share.

Source: Anand Rathi

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 11677.97 crore, down -12.25 per cent from last quarter sales of Rs 13307.54 crore and down -10.71 per cent from last year's same quarter sales of Rs 13078.09 crore. The company reported net profit after tax of Rs 3926.46 crore in the latest quarter

Promoter/FII Holdings

FIIs held 14.65 per cent stake in the company as of March 31, 2020 while DIIs held 42.46 per cent and public & others 42.89 per cent.