ITC

Current market price: Rs 189.60
Target Price: Rs 218
Upside: 15.2%
Brokerage: India Infoline

ITC’s cigarette volumes will decline by 1 per cent in FY09 although Q1 FY09 volume decline was not as bad as expected. Margins on cigarettes will expand once the consumer upgrading exercise targeted at converting non-filter smokers is over by Q2 FY09. Cigarette volumes are expected to register a CAGR of 6.5 per cent over FY10-11.

Losses of non-cigarette FMCG businesses are unlikely to increase meaningfully as, the food business will turn earnings-positive by FY10 as commodity prices stabilise with major contribution from Aashirvaad and Sunfeast. Also, investments in soaps and shampoos businesses will be scaled back after aggressive expenses in the launch phase to accommodate new market entries such as skincare.

In agriculture business, easing in commodity prices is likely to improve the macro environment for ITC, with exports of commodities such as wheat being freed up. Growth in paper business would be driven by expansion plans of Rs 200 crore over the next 2-3 years and feasibility study is on to put up a 9,00,000 tpa paperboard machine.

Hotels revenues would be stable, driven by capacity additions during FY10-11 as well as restricted supply in key markets. To protect itself against rupee appreciation, ITC has started rupee billing. Agri, paper & paperboard and hotels are expected to register sales CAGR of 16 per cent, 28 per cent and 10 per cent, respectively over FY08-11.