ITC posted a healthy set of numbers for 1QFY2017, both on the top-line and the
bottom-line front. The top-line was strong due to healthy growth in Cigarettes,
other FMCG & Agri businesses which resulted in a higher overall profitability of
the company.
Key highlights: ITC’s net sales for the quarter grew by 9.8% yoy to Rs10,054cr. In
terms of segment wise performance (gross level), the Cigarettes business posted a
6.4% yoy growth in sales to Rs8,231cr, aided by price hikes and increase in
volume. The FMCG (Others) business posted a 9.5% yoy growth in sales to
Rs2,385cr. Further, the Agri business posted a strong sales growth of 20.2% yoy to
Rs2,794cr. However, the Paperboards & Packaging and Hotel divisions posted a
revenue de-growth of 1.6% yoy and 0.2% yoy for the quarter. Overall, the
company’s OPM contracted by 43bp yoy to 35.1%, owing to increase in raw
material and staff costs.
Outlook and valuation: We expect ITC to report a top-line and bottom-line CAGR
of 9.8% and 11.3% respectively over FY2016-18E. At the current market price,
the stock is trading at 24.6x its FY2018E EPS. We recommend an Accumulate on
the stock with a target price of Rs283.

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