Thursday, July 21, 2011

ITC - Buy

ITC is the market leader in the Indian tobacco space, as its foray into FMCG, particularly foods and cigarettes. The company has been able to build strong positions in completely new businesses such as soaps, packaged staples and snacks over the past few years. This adds another strong leg to the medium-term growth prospects for ITC.

Dominant player in tobacco space: ITC is by far the biggest player in cigarette market with a strong -- 70 per cent market share is more than 5x the size of its nearest competitors.

ITC Ltd., a well-established player in the food space in India with presence across segments such as packaged staples, finger snacks, biscuits and packaged foods.

ITC has significantly invested in expending its food business portfolio and the related supply chain which helped the company to create strong backbone. The company is expected to deliver strong earnings growth in medium term considering packaged and processed food as the next growth driver.

Agri business -- Benefits from continued mix change: The company's conscious decision to focus on higher profitability products and move away from lower-margin products like sesame, rice, pulses, etc., in FY09 resulted in EBIT (earnings before income and tax) margins increasing to 11 per cent in FY09 (vs. 5.2 per cent in FY08).

Leaf tobacco is at present 50 per cent of category sales -- with soya, coffee and wheat accounting for the rest. The company expects to sustain margins, though volumes/revenue growth might decline on account of lower leaf tobacco output due to unseasonal rains.

Time Span Price Change %Change
Today 206.50 0.75 0.36
Week 203.40 2.35 1.15
Month 186.55 19.20 10.29
Three Months 190.10 15.65 8.23
Six Months 168.95 36.80 21.78
One Year 145.73 60.02 41.18

In spite of high valuations, ITC seems a good long term pick. The retuns table given below shows the scrip performance which has gained 45% during the last one year. Buy around 175 levels for a target price of 250 holding period 6-7 months.

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