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Centrum Broking
ITC (Buy)
Target: ₹353
MP: ₹170.85
In wake of Covid-19 pandemic , the Maharashtra public health department has banned the sale of “loose” cigarettes and bidis. This has been done for two prime reasons: Loose cigarettes were sold without packet, which don’t carry graphic warnings meant to educate the public about harms of smoking; and to stop the youth from addiction, as they generally lack the financial resources to buy the whole pack.
We believe that implementation of the law was the easy part and it is in fact the execution of the notification that will pose the real challenge to the controlling authority. Moreover, we notice that ITC has already been ahead of the curve and taken measures such as launching a 5s pack to remain affordable to the target segment.
We believe ITC’s cigarette business will undoubtedly continue to remain the cash cow, however, it’s actually the foods business that will trigger re-rating for the company. We expect FMCG segment revenue to increase to 12.3 per cent by FY23 and re-iterate our buy rating with DCF based 2 year target price of ₹353 (implying 23.6x FY23E EPS).
Key risk are sharp increase in any form of taxation, higher leaf tobacco prices and prolonged/ intermittent local lock downs by states
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