Buy ITC 3QFY11 – Sturdy performance; Anand Rathi

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ITC
3QFY11 – Sturdy performance; maintain Buy
ITC reported a healthy 3QFY11, with revenue and PAT growing
20% and 21.4% respectively. Given its cigarette business coming
back on track and improving profitability in other segments, we
remain positive on ITC and expect earnings CAGR of 20% over
FY10-13e. We reiterate Buy and target price of `205/share.

 Healthy revenue growth. ITC reported revenue growth of 20%,
yoy, with all segments doing well. Cigarettes reported revenue
growth of 18% led by volume growth of 3-4%. While ‘Other
FMCG’ saw revenue growth of 23%, Hotels and Agribusiness
registered revenue growth of 15% and 18% respectively.

 Net profit grew 21.4%. ITC’s EBITDA margin is slightly lower,
by 50bps, due to higher other expenditure. With lower income tax
rate, net profit is up 21.4% yoy. EBIT margin of the cigarettes
segment is lower by 30bps. Hotels and Agribusiness reported
margin improvement of 40bps and 172bps respectively.
 Outlook. We remain positive on ITC’s volume growth in the
cigarettes segment. Further, we are positive on Hotels, with the
World Cup and IPL commencing in the next two quarters.
Restructuring of Agribusiness has also paid off well for ITC.
 Valuation and risks. We maintain our target price of `205, based
on PE of 26x FY12e earnings. Our target PE is at 50% premium
to the 12M forward Nifty PE compared with 5-year average
premium of 30%. We expect the premium to expand with higher
volume growth in Cigarettes and other businesses doing well.
Risks: higher competition and raw material prices.