ITC - Runway For Growth Remains High: Nirmal Bang

Nirmal Bang Report

Some interesting pointers from the analyst meet were -

1. ITC Ltd. focussing on fortifying the core, addressing adjacencies and launching new growth vectors in the fmcg business and management stating that the 100 basis points Ebitda margin improvement per year that has been achieved in the last three years can be done in the next three years as well apart from continued improvement in segment return ratios,

2. new launches in cigarettes are up five times in the last five years and contribute ~17% of volumes,

3. capex Rs 30 billion-32 billion average in the past may sustain at these levels. 40% capex will be in other FMCG, 30- 35% in paper, rest in agri and other vectors,

4. ITC's management incentive structures changes- In recent years there have been sharper linkages of variable pay with financial outcomes and sustainability metrics for divisional heads and senior managers.  There has been no material change to our estimates.

We believe that Ebitda and earnings CAGR during FY23-FY26E is likely to be ~10%. Valuation of ~24 times FY25 EPS is inexpensive, considering ITC’s potential of healthy earnings growth given its size and impressive return ratios of over 30%. Maintain 'Buy'.

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