ITC Q3 Results Review - Cigarette, Paper Drag The Quarter, Lacks Triggers: Prabhudas Lilladher

Prabhudas Lilladher Report

ITC Ltd. Ebitda de-grew by 3.2% due to 1.6% decline in cigarette volumes and 50% decline in paperboard profitability. Fmcg Ebitda margins of 11% (24.1% Ebit growth) and 57.1% Ebit growth in hotels have been positive.

Q3 reported profit after tax includes onetime tax refund of Rs 4.68 billion excluding which PAT increased by just 1.6%.

Demand scenario remains mixed with mass segment under pressure across cigarettes and FMCG.

We expect 4.3/4% cigarette volume growth in FY25/26 in a steady state while FMCG will continue to expand margins by 100 bps.

Although hotels have a high base, revival of business and foreign tourist flow will cushion the performance in FY25. Outlook on paper remains muted in near term given high input costs of wood and pressure on end product prices due to Chinese dumping.

We are largely retaining our estimates and estimate 7.5% EPS CAGR over FY24-26. We believe FMCG and IT services will add significant shareholder value over coming few years.

ITC trades at 23.4 times FY26 EPS with return on equity/return on capital employed of 31.4/41.7% and ~80%+ dividend payout.

We assign SOTP based target price of Rs 489 (Rs 487 earlier) as we roll forward to December 2025. We expect returns to be back ended given tepid EPS growth despite favorable valuations. Retain 'Accumulate'.

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