ITC posted a poor set of numbers for 3QFY2016, both on the top-line and
bottom-line fronts. The top-line was subdued due to lower growth in Cigarettes &
Hotel businesses and de-growth in Agri business, which in turn resulted in a lower
profitability of the company.
Key highlights: ITC’s net sales for the quarter grew by 2.6% yoy to Rs9,177cr. The
Cigarettes business posted a 5.7% yoy growth in net sales to Rs4,380cr, aided by
price hikes. A muted sales growth in the Cigarettes business resulted in the
segment posting a 3.4% yoy growth in its EBIT. The FMCG (others) business,
which posted a 7.1% yoy growth in net sales to Rs2,478cr, posted an EBIT level
profit of Rs19cr. Further, the Paperboards and Packaging division posted a growth
of 5.1% yoy and 12.7% yoy in revenue and segmental EBIT, respectively. The
Hotels business posted a 4.5% yoy growth in its top-line, while it reported a
de-growth at the EBIT level. The Agri business posted a de-growth of 7.3% yoy in
revenue, while its EBIT de-grew by 3.1% on a yoy basis. Overall, the company’s
OPM expanded by 55bp yoy to 39.3%, owing to lower raw material costs (down
254bp yoy as a % of sales).
Outlook and valuation: We expect ITC to report a top-line and bottom-line CAGR
of 4.5% and 5.0% respectively over FY2015-18E. At the current market price, the
stock is trading at 22.2x FY2018E EPS. We recommend buy on the stock with a
target price of Rs359.

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