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Axis Securities
ITC (Buy)
Target: ₹230
CMP: ₹197.45
ITC is a market leader in traditional businesses of cigarettes, hotels, paper boards, packaging and agri-exports and is rapidly gaining share in the FMCG segment. Market share gains likely aided by faster recovery in cigarette business, as competitor Godfrey Phillips plant continues to remain shut given its presence in containment zone. Also, with operations reaching normal utilisation levels post resumption of operations in mid-May we expect a faster recovery in Cigarette biz.
All through the lockdown, ITC’s FMCG business operations continued, albeit with initial challenges. We thus expect the division to report resilient performance in Q1-FY21 as utilisation across plants manufacturing essentials plants have bounced back to 80-85 per cent levels.
With revision in dividend policy to paying out 80-85 per cent of profits as dividend, we expect ITCs dividend yield to be at healthy over 5 per cent. Moreover a cash rich, debt free balance sheet and strong cash flows aided by favourable working capital movement at 54 days as of FY20 from 65 days in FY19 are positives.
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