Religare assigns buy to ITC for Rs 220 target

Religare Capital Markets has valued the ITC stock on a SOTP basis and has a 'buy' rating with a target price of Rs 220.


ITC has reported losses of Rs 120 crore in other FMCG business in Q1FY09. In the hotels business, ITC expects growth in the mid-teens. This growth will come form higher ARRs since occupancy levels are expected to remain stagnant at 65 per cent. Margins for paper and paperboards will improve. ITC current trading at a P/E of 18 times and 15.2 times and an EV/EBITDA of 12.1 times and 10.1 times its FY09E and FY10E earnings respectively. The stock is currently trading at Rs 174.

The ban on smoking in public places has been in place in India since November 2001, when it was enforced by the Supreme Court. The new enforced from October 2, 2008 merely extends coverage of the ban to private offices, hotels, pubs and airports. About 70 per cent of the cigarettes sold in India are loose and used in non-public places. The volume of cigarettes smoked in hotels and private offices is miniscule and thus, the new smoking ban is unlikely to have a material impact on ITC's cigarette volumes.

ITC hiked cigarette prices by 5-15 per cent in August 2008. The hike covered 60 per cent of its total portfolio with a weighted average price increase of 6 per cent.

The brokerage expects a 3 per cent volume de-growth in Q2FY09 in line with that in Q1FY09.

Source: EconomicTimes