Buy ITC with target price of Rs.200 - Motilal Oswal

ITC (ITC IN; Mkt Cap USD29.8b, CMP Rs173, Buy)

Duty free!: Cigarette excise duty unchanged in FY12 Budget

Increasing target price to Rs200 on 4-5% earnings upgrade; Buy for 15% upside

We are increasing volume growth estimates from 6% to 7% for FY12 but we maintain FY13 estimates at 6%.

We believe ITC is in an advantageous position as it took a pre-emptive price increase of 4% in Jan '11. We don't rule out a price increase of 1-1.5% this year.

We are revising our FY12 and FY13 cigarette EBIT growth estimates from 15% and 11.9% to 20.4% and 14.5% respectively.

Non-cigarette EBIT increased 35% in 9MFY11, driven by a 22% increase in EBIT in paperboard, hotels and the agriculture business.

New FMCG losses declined 15% YoY. We estimate 23% CAGR in ITC's non-cigarette business.

We are upgrading FY12 and FY13 EPS estimates by 4-5% to factor in higher volume growth and margin expansion due to flat excise duty on cigarettes in the FY12 Budget. The stock trades at 22.3x FY12E EPS of Rs7.8 and 19x FY13E EPS of Rs9.2. Maintain Buy with a target price of Rs200, a 15% upside.

Source : Equity Bulls

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