BUY ITC ;price target of Rs 195: Latin Manharlal Securities

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 ITC Ltd."

COMPANY PROFILE

ITC Ltd has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri Business, Packaged Foods & Confectionery, Branded Apparel, Greeting Cards, Safety Matches and other FMCG products.

While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards & Stationery.

 

BUSINESS SEGMENTS

The Company operates in 4 segments: (i) Fast Moving Consumer Goods (FMCG) (ii) Hotels (iii) Paperboards, Paper & Packaging and (iv) Agri Business.

The FMCG segment includes Cigarettes (which comprises cigarettes and smoking mixtures) and Others which include branded packaged foods (staples, biscuits, confectionery, snack foods and ready-to-eat foods), garments, educational and other stationery products, matches, agarbattis and personal care products.

The Hotel segment includes hoteliering.

The Paperboards, paper & packaging segment includes paperboards, paper including specialty paper and packaging including flexibles.

The Agri Business segment includes agri commodities, such as rice, soya, coffee and leaf tobacco. The Company's Agri Business markets agri commodities in the export and domestic markets; supplies agri raw materials to the branded packaged foods business and sources leaf tobacco for the cigarettes business.

 

INVESTMENT ARGUMENTS

Ø  Strong momentum in Non-Cigarette FMCG business: Robust performance in 3QFY11

Ø  Cigarette business – the cash cow – Volumes are back again

Ø  Hotel Business on the path of recovery

Ø  Agri business performance remains consistent

Ø  Strong Distribution Network

ØSynergies across businesses and leveraging domain expertise for growth in other sectors

VALUATION

The Company's successful strategy of creating multiple drivers of growth leveraging the diverse competencies residing in its portfolio of businesses is evident in its impressive track record of growth in the last decade and its strong debt-free balance sheet. Going forward ITC may witness split of its cigarette business which may unlock value for shareholders.

At the CMP `168.75, the scrip trades at 21.7x FY’2012E EPS of `7.79. We recommend BUY on the stock with a price target of `195, an upside of 15% from the current levels over a period of 12 months.