Maintain BUY on ITC – TP increased to Rs.330 - Geojit BNP Paribas

- Buy rating is reiterated on ITC with an increased target price of Rs.330 over one year. Earlier target price was Rs.260.

- ITC reported another quarter of encouraging performance despite significant challenges posed by steep excise duty hikes of nearly 20% earlier in the year and the general slowdown of the Indian economy.

- Results were ahead of expectations supported by strong brand positioning and intensive marketing. Revenue performance was mainly supported by non-cigarette business while reduced costs supported operating profits.

- Though cigarette price hikes impacted volume growth, improved macro-economic outlook and entry into sub-65mm cigarettes are expected to improve volumes in remaining FY13 and FY14.

- The consumer (FMCG) business is on course to achieve EBIT breakeven, while the Hotel and Paper businesses have seen expansion in capacities. New paper capacity is expected to be on-stream by Q4FY13.

- In spite of significant out-performance when compared to the broader markets, positive stance is retained on the stock, considering the improvement in margins and the positive outlook for the cigarette and non-cigarette businesses of the company.

- Key Risks to the Target Price: Lower-than-expected volume growth and profitability for cigarette business, any extraordinary regulatory changes and any diversification plans which could impact profitability.

Source : Equity Bulls

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