Buy ITC; target of Rs 320: Axis Direct

Axis Direct's research report on ITC

Comparable cigarette gross sales and EBIT grew 1% and 2% with 6% volume decline. Cigarette volume was hurt due to GST rate pass-through. Other FMCG and paper sales grew 10% and 18%, while agri and hotels posted muted show. Non-tobacco EBIT grew 5.5% YoY with better show in other FMCG and paper businesses. EBITDA and adj. PAT grew 4%, and 6% vs. consensus expectation of 6% each.

Outlook
We cut our EPS estimate for FY18/FY19 by 2-4% to factor in H1FY18 performance. We now expect 2% volume decline in FY18. Over FY17-19E, we expect sales and EPS CAGR of 9% each. Valuation at FY19E P/E of 27x is not cheap but remains significantly cheap on a relative basis. Maintain BUY with TP of Rs 320 (vs. Rs 330 earlier) based on forward P/E of 30x.

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