March 28, 2015 . Equities Desk

ITC Ltd is one of the leading conglomerates with business interests in cigarettes & tobacco, packaging, agri-business, food, hotels, lifestyle retailing, personal care, paper & stationery and branded apparels. In the cigarette segment, the company enjoys more than ~80% market share by value in India. Despite the presence across various business segments, cigarette still draws a major part of profitability as ITC operates with over 2 mn retailers across India managing one of the largest distribution networks in the country.

Valuation and view

Aggressive pricing, strong balance sheet, investments across segments and new businesses, may help ITC to gain further market share in the Indian FMCG business pie. Moreover, above average industry growth in the non-cigarette FMCG business is also likely to power the company’s growth, going forward. A rising market share in the packaged food business and strong growth in the personal care segment, may help propel ITC to the top of the pie in the FMCG industry over the coming years. We remain bullish on ITC on higher earnings visibility and improving profitability in the non-cigarette FMCG business that could lead to higher cash flows and payout ratios.

At a current market price (CMP) of  Rs317, the stock trades at 21.8x FY16E and 18.5x FY17E, earnings. We recommend ‘BUY’ with a target price of  Rs386.2, which implies potential upside of 21.8% to the CMP from 1 year perspective.

Research Report ITC Ltd

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