ITC's EBITDA/ PAT growth was reasonably healthy at +19.2%/+18.2% YoY, well ahead of our and consensus estimates with significant improvement in performance in cigarettes/ other segments in the aggregate. Strong performance was exhibited by Cigarettes, Agri-business and Paper board. Despite strong performance, ITC is trading at a steep discount to other large FMCG players, which trades at 35x-45X FY20E PER (vs. 25X FY20E PER for ITC). We retain BUY on ITC with an unchanged price target of Rs 330 at 29x FY20E PER.
- Revenue was reported at 107.07 bn (+6.5% YoY), a marginal 1% above expectations led by strong performance of Cigarettes, Agri-business and Paper board divisions
- Other operating income was also higher than expected at Rs 1.52 bn (+95% YoY)
- Aggregate EBITDA was reported at Rs 42.0 bn (+19.2% YoY) translating into a healthy EBIDTA margin of 39.2%. It's commendable that the company is able to sustain its operating margin at ~40% level post GST. The strong operational performance was on the back of good performance of cigarettes and paper board.
- Recurring PAT was reported at Rs 28.2 bn (+18.2%) by and ahead of our estimate. It was aided by strong operational performance.
Valuation & outlook
- Despite operating under an unfavorable regulatory environment, ITC has been consistently posting strong numbers and is one of the most attractive stocks available in the FMCG space with strong prospects. The adverse abrupt increase in indirect taxes on cigarettes in the past looks history, with we estimating a more stable and predictable GST policy on cigarettes. Non-cigarette (FMCG) segment have started to deliver and should do well in line with estimated improvement in consumer demand in rest of FY19.
- Despite strong performance, ITC is trading at a steep discount to other large FMCG players, which trade at 35x-45X FY20E PER (vs. 25X FY20E PER for ITC). We note that several much-more-expensive peers have performed equally well or poorly to ITC. We remain positive on ITC as the current valuations factor less than super-normal growth over FY18 to FY20E. We retain BUY on ITC with an unchanged price target of Rs 330 at 29x FY20E PER.
Shares of ITC LTD. was last trading in BSE at Rs.302.2 as compared to the previous close of Rs. 287.15. The total number of shares traded during the day was 3471858 in over 24427 trades.
The stock hit an intraday high of Rs. 307 and intraday low of 294.85. The net turnover during the day was Rs. 1047635660.