Motilal Oswal - MOSL: ITC (Neutral)-Investing aggressively for the long term-Near-term outlook uncertain

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Motilal Oswal

Krishnan Sambamoorthy

MOSL: ITC (Neutral)-Investing aggressively for the long term-Near-term outlook uncertain

ITC: Investing aggressively for the long term; Near-term outlook uncertain, valuations fair

(ITC IN, Mkt Cap USD47.2b, CMP INR263, TP INR290, 10% Upside, Neutral)

We pored over ITC’s FY18 annual report. Key highlights:

The cigarette segment is confronting multiple challenges.
The company is investing aggressively in capacity, supply chain, R&D and technology from a long-term perspective.
As highlighted in our report released on 10th November 2017, ITC is aggressive about new launches, particularly in the ‘Other FMCG segment.’
Efforts on sustainability are remarkable.
However, in view of the muted earnings growth prospects over the near-to-medium term, we maintain our Neutral rating on the stock. Valuations of 23.2x FY20 EPS are fair for a business facing earnings risks from potentially higher GST rates. Eventual diversification away from cigarettes (86% of total EBIT in FY18) to other businesses is possible. However, as of now, the fate of the business is contingent on regulations governing the cigarettes business.

03/07/2018 14 EN

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Motilal Oswal

Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

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Analysts

Krishnan Sambamoorthy

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MOSL: ITC (Neutral)-Investing aggressively for the long term-Near-term outlook uncertain

MOSL : HOME FIRST FINANCE COMPANY: Earnings in-line with sustained improvement in asset quality

MOSL : SHOPPERS STOP: Ticking the right boxes

MOSL : ERIS LIFESCIENCES: Enhanced efforts toward product launch-related activities

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