ITC posted a healthy set of numbers for 4QFY2016, both on the top-line and the
bottom-line front. The top-line was strong due to higher growth in Cigarettes &
Agri businesses; however, higher taxes slightly dragged down the overall
profitability of the company.
Key highlights: ITC’s net sales for the quarter grew by 9.4% yoy to Rs10,169cr. The
Cigarettes business posted a 10.2% yoy growth in net sales to Rs4,639cr, aided by
price hikes, which enabled an 11.5% yoy growth in the segment’s EBIT. The
FMCG (Others) business posted a 5.4% yoy growth in net sales to Rs2,704cr, and
an EBIT level profit of Rs71cr. Further, the Paperboards and Packaging division
posted a growth of 3.0% yoy and 6.5% yoy in revenue and EBIT, respectively. The
Hotels business posted a 4.8% yoy growth in its top-line, while it reported a flat
growth at the EBIT level. The Agri business posted a strong growth of 26.5% yoy
in revenue, while its EBIT grew by 6.1% on a yoy basis. Overall, the company’s
OPM expanded by 136bp yoy to 36.3%, owing to reduction in overall operating
Outlook and valuation: We expect ITC to report a top-line and bottom-line CAGR
of 8.3% and 9.3% respectively over FY2016-18E. At the current market price, the
stock is trading at 22.6x FY2018E EPS. We recommend a Buy on the stock with a
target price of Rs380.

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