ITC ::Sharekhan Top Picks: November 2011

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ITC’s cigarette business, which contributes around 60%, continues to be a cash cow for the company. The
company endeavours to make a mark in the Indian FMCG market and with successful brands such as Bingo,
Sunfeast and Aashirwaad, ITC is already in the reckoning among the best in the industry. With the new
portfolio of personal care products gaining market share, its FMCG business promises to compete with the
likes of Hindustan Unilever and Procter & Gamble.
After a sharp increase of 16% in Union Budget FY2010-11, the government has spared cigarettes from an excise
duty hike in the FY2012 budget. Also key states including Kerala, Karnataka, Andhra Pradesh and Maharashtra
have kept VAT on cigarette unchanged in their respective state budgets. We expect ITC’s cigarette sales
volume to grow at mid single digits in FY2012.
ITC’s other businesses, such as hotel, agri, non-cigarette FMCG business and paper, paperboard and packaging,
are showing a strong up-move and will provide a cushion to the overall profit in FY2012.
An increase in taxation and the government’s intention to curb the consumption of tobacco products remain
the key risks to ITC’s cigarette business over the longer term.
We expect ITC’s bottom line to grow at a CAGR of about 21.2% over FY2011-13. At the current market price, the
stock trades at 26.6x its FY2012E earnings and 22.4x its FY2013E earnings. We maintain our Buy recommendation
on the stock.



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Sharekhan Top Picks: November 2011