Broker's call: ITC (Buy)

Target: ₹ 353

CMP: ₹201.55

As per Health Ministry Draft Bill 2020 proposals included: to increase the smoking (legal) age from 18 to 21 years; ban sales of loose cigarettes; do away with designated smoking rooms at airports and restaurants; and, increase penalties for flouting ‘no public smoking’ rules to curb smoking. In the past, since 2003, with enactment of COTPA (Cigarettes and Other Tobacco Product Act) under WHO guidelines, the Government has implemented various measures to cut tobacco consumption such as pictorial warnings, ban in public smoking, restricting entry of shops within 500mt radius of school, colleges.

As per GATS-2 survey conducted by WHO in 2017, definitely the smoking population has come down, yet there is no significant change in overall tobacco consumption in the country which could be a cause of concern for the Health ministry at this stage. In these circumstances we believe the intention of the Government is driven by WHO guidelines, yet implementation and execution could be a big challenge.

However, as done in the past, in the long run companies will try to reinvent its business offering adhering to guidelines in our view. Considering this, we believe, ITC’s renewed focus on maintaining cigarette market share, tailwinds for FMCG foods business, strong FCF, high dividend yield and compelling valuations make it more attractive for long term investors.