Prabhudas Lilladher is bullish on ITC has recommended buy rating on the stock with a target price of Rs 369 in its research report dated May 13, 2019.
Prabhudas Lilladher's research report on ITC
ITC reported yet another steady quarter with ~7.5% cigarette volume growth and sustained expansion in margins across FMCG and Paperboards business. Cigarette demand outlook remains positive, sans any sharp increase in GST rates in coming months. FMCG business faces near term demand headwinds, however long term trajectory of double digit topline growth, category expansion and steady increase in margins looks intact (108bps EBIT margin expansion in FY19, target of double digit margins in 5 years) post restructuring of lifestyle retailing business. Paperboard business is in fine fettle given gains from steady prices and benign input costs. Hotels ARR and occupancy indicates steady improvement in profits, however we are far off from pre 2009 profitability. ITC trades at 22.7xFY21 EPS, 35-40% discount to our coverage universe and 2% dividend yield limits downside in the stock.
Outlook
We believe that stable cigarette taxation regime can re-rate the stock. Retain "Buy" with SOTP based target price of Rs369 (Rs364 earlier).
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