Prabhudas Lilladher has given Buy recommendation for ITC with a target price of Rs. 258 in its research report issued on Jun 01, 2021

Prabhudas Lilladher’s research report on ITC

We are increasing FY22/23 EPS estimates by 3.7-4.5% given recovery in cigarette volumes, pick up in leaf tobacco and Agri exports and 8.9% FMCG EBIDTA margins in FY21. We believe lockdowns are temporary hiccups and expect smart pickup post 1Q. we believe stable cigarette taxation and FMCG profitability are key positives in near term. We expect Agri profitability to improve given strong surge in commodity prices and revival in leaf tobacco demand (20%+ margins). Hotels business remains under cloud but global trends suggest significant pick up in travel in 2H22. We believe double digit EBIDTA margins in FMCG business by FY22/23 and relative stable cigarette tax regime cap any downside.

Outlook

ITC trades at 15.6x FY23 EPS, 60% discount to our coverage universe with 5% dividend yield and 13.5% EPS CAGR over FY21-23. Maintain BUY with SOTP based target price of Rs258 (Rs248 earlier, valuing cigarette business at 15.7x FY23 EPS, 58% of value).

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