ITC - Earning Visibility Continues To Drive Performance: Motilal Oswal

Motilal Oswal Report

ITC Ltd.'s analyst meeting was a welcome move by the management as it provided a platform for a comprehensive discussion on the prospects and concerns of its various businesses.

ITC has benefited from a consistent and stable tax environment for cigarettes in recent years. This stability has empowered the company to carefully adjust pricing strategies, avoiding disruptions in demand. We anticipate this trend to persist, leading to enhanced cigarette volumes and improved earnings visibility in the medium term.

ITC benefits from the extensive range of fmcg products in its portfolio, providing an edge in a dynamically evolving demand landscape. The company's leadership in specific categories not only allows it to wield pricing power, but also enable the exploration of value-added adjacencies and the promotion of premiumisation strategies.

The resilient nature of its core business, amid an uncertain environment in the sector, and 3-4% dividend yield makes it a good defensive bet in the ongoing volatile interest rate environment.

Earning compound annual growth rate at the profit before tax level stood at 8.5% over FY18-23. We expect ITC to post 13% earnings CAGR over FY23-25.

We believe the premium multiples are justified, given its strong visibility over the medium-term and the defensive nature of its business, especially in a volatile macro environment.

We reiterate our 'Buy' rating with a target price of Rs 535, based on 28 times FY25E earnings per share.

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