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Prabhudas Lilladher Report
ITC Ltd.'s Ebitda growth at 3% was below estimates due to sharp decline in paperboard segment Ebit by ~50% and moderation in cigarette volume growth to 4.9% on a normalised and high base. Fmcg Ebitda margins of 11% (36.8% Ebit growth) and 49.6% Ebit growth in hotels have been positive.
We expect cigarette volume growth to moderate to 4-5% range in H2 FY24. Fmcg business is expected to gain from festive season, expected uptick in rural demand and scale economies. We believe paper and paperboard business is near bottom and expect QoQ margin improvement in coming quarters.
We expect strong growth from hotels and fmcg to sustain given benign input costs and strong demand outlook for both domestic and foreign travel.
We are largely retaining our estimates and introduce FY26 EPS. we estimate 9.7% earnings per share compound annual growth rate over FY23-26.
We believe fmcg and IT services will add significant shareholder value over coming few years. ITC trades at 23.6 times September FY25 EPS with return on equity/return on capital employed of 32.8/42.3% and ~80% plus dividend payout.
We assign SOTP based target price of Rs 492 (Rs 475 earlier) as we roll forward to September 2025.
Valuations limit major downside, expect for any punitive cigarette taxes in future.
We expect back ended returns post sharp appreciation over past couple of years. Retain 'Accumulate'.
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