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Analyst Research Report Snapshot


ITC Ltd. (ITC) - Qtr. Update - Dated - May 23, 2014




Axis Capital Limited


24 May 2014





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Q4 results were largely in line with our expectations. Key highlights:  3% decline in cigarettes volumes which has been impacted by weaker macro environment and inflationary pressure  However, Premium cigarettes continued to grow driving mix improvement which along with price hikes (~19% YTD) drove handsome EBIT margin gain (up 280 bps YoY) in cigarettes  Non-cigarettes business posted 19% EBIT growth led by FMCG that reported 2% EBIT margin in Q4 and maiden annual profit in FY14 Moderate tax regime and improvement in consumer sentiments could aid cigarettes volume growth. We remain optimistic of cigarettes volume growth recovering to 4% in FY15E. Further, consumer up trading is expected to drive cigarette EBIT by 17% CAGR over FY14-16E. ITC has delivered 11% absolute return over the last 6 months outperforming FMCG index. Thus, ITC’s discount to FMCG peer group on a 1-yr forward PE has narrowed from recent high of 20% to 12%. We recommend HOLD on ITC with SOTP target price of Rs 354, which implies P/E of 24x FY16E (10% premium to its 10-year average of 1-yr fwd PE of 22x). Our TP of Rs 354 implies 3% upside from CMP of Rs 342. At CMP, ITC trades at 27x FY15E EPS of Rs 12.8 and 23x FY16E EPS of Rs 15. Regards, Hemant Patel (Executive Director – Consumer) hemant.patel@axiscap.in; 91 22 4325 1105 Ajay Thakur (Asst VP – Consumer) ajay.thakur@axiscap.in; 91 22 4325 1125

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