Destimoney Research - ITC Limited - Re-iterating BUY

We are re-iterating our BUY rating on ITC Limited with a revised target price Rs.288 per share.

- ITC has shown consistent performance in Q4FY12 except hotel business, which was impacted by macro economic headwinds and curtailment of corporate expenditure in the country.

- In Cigarettes segment, the growth was mainly price-led, which resulted in segment margin improvement. After the increase in excise duty in Union Budget, ITC carried a weighted average price hike of ~12%.

- The company has launched 64 mm cigarette under Capston brand at Rs.2 per stick price point. In response to the UP government's recent hike in VAT on cigarettes from 12.5% to 50%, we expect ITC to increase cigarette prices to pass on the cost as seen in the past.

- In FMCG business, ITC brought down the segment loss considerably in FY12 in line with our expectation. Premium launches in packaged foods and personal care categories supported by distribution reach to 3.2mn outlets are driving the faster growth in FMCG business.

- Agri and Paper & packaging businesses reported 26.6% and 11.4% growth in FY12, while maintaining profit margins.

- Led by sustainable demand in all businesses, we believe ITC should comfortably grow at 15.5% over the next two years. The company's profitability is expected to grow with timely price hike in cigarette prices and growing brand in other FMCG businesses to trim the losses.

Source : Equity Bulls

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