ITC Limited - Profit performer - 1QFY14 Results Review - Antique

We continue to believe in ITC, post 1QFY14, primarily due to the consistent profit performance by the company backed by its cigarettes business. We believe that the market had over expectations on ITC's cigarette volume growth and the drop of 2% in the division's volumes was normal in a period of price hikes and consequent inventory corrections.

However, more importantly, the EBITDA and PAT growth of 17% and 18% during the quarter, despite moderation in non-cigarette businesses, demonstrates the advantages of its addictive pricing strength in an uncertain scenario.

ITC's cigarette PBIT at INR22.4bn grew by 18% during the quarter compensating for the lackluster PBIT growth of 4% in non-cigarette businesses to INR4.41bn. The other key profit driver during the quarter was the 2% drop in other expenditure at INR1.32bn due to lower promotional activities.

We believe that in a scenario where majority of the consumption related and non-related businesses in the country are under pressure from the economic slowdown, ITC is poised to outperform earnings growth led by its domination in cigarettes. In our view, the company will emerge stronger by gaining market share in the current scenario of relentless duty hikes.

Nevertheless, we maintain our concerns over the valuations and recommend a HOLD on the stock with a target price of INR356. At the CMP of INR359, the stock is trading at a PE of 32.4x FY14e and 27.2x FY15e.

Source : Equity Bulls

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