ITC- On a steady path; Buy: IDBI Capital
Source: IRIS | 15 Dec, 2021, 05.01PM
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| Rating: NAN / 5 stars. |
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 IDBI Capital Equity Research said that they have attended ITC Limited (ITC) analyst meet. Company aims to achieve double digit revenue and operating profit growth in near term.
"Cigarette business is witnessing improvement in revenue mix driven by new launches (new products contribute 11% to volume, while assortment increased 2x during last 8 years). Rich revenue mix should help in offsetting impact on cigarette volume growth due to tax driven price hikes taken earlier/if-any-in-future," it said.
On FMCG business; ITC expects to maintain EBITDA margin despite raw material cost inflation. In hotel business; company expects leisure segment to outperform in near term while business travel continues to face growth headwinds due to rise in virtual reality. ITC expects inbound tourism is likely to do well in near term. On the IT business; ITC sounded positive on separate listing. Capex is expected to be c. 30bn p.a. for next 3 years. "We maintain our estimates. At current price; we have a Buy rating on the stock," the broking firm added.
Key highlights and investment rationale
Premium products to drive revenue growth in cigarette business
Cigarette business is likely to do well if tax rates are stable at current levels driven by higher contribution from premium products. In Classic brand; 4 new variants launched during last 5 years now contributes c. 25% to portfolio while under Gold Flake brand; new launches over last 5 year account for 10% of the portfolio. ITC has doubled overall assortment of cigarette business over last 8 years.
FMCG business is stable; hotel to be divested; IT could be listed separately
FMCG business will continue to benefit from growth in power brands driven by increase in distribution reach and penetration. ITC expects to maintain EBITDA margin at 9% despite inflation in raw material cost. ITC remains committed to divest the Hotel business only after industry is back to normalcy. On Infotech business; ITC is open to the possibility of separate listing.
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