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ITC – Defensive in turbulent times

October 27, 2008

ITC grew sales by 15% and PAT by 4%. Cigarette volume was down c2.5% in line with expectations, but margin expansion was only 68bp despite a 13% realisation increase due to higher raw material costs. FMCG losses at INR1,166m were 219% higher than last year but almost equal to last quarter, going forward the same should decline.

Agri business surprised positively as EBIT margins rose 7% Y/Y, driven by exports of tobacco leaf and soya. Hotel business EBIT was +4%, impacted by lower occupancy levels. FY09 EBIT guidance was maintained at c15%, implying 2H will be seasonally weaker. Paper EBIT was -3% Y/Y as mill commissioning resulted in heightened depreciation levels.

The macro outlook continues to appear tough in the near term. In such a scenario, we expect consumer stocks to continue to shine, led by resilient earnings, stable cash flows and a strong balance sheet.

DSP Merill Lynch expects ITC to report an EPS of Rs 9.3 for FY09.
HSBC estimates FY09 EPS to be Rs 9.11 and SOTP Valuation is at Rs 175.
Citi expects ITC to report an EPS of Rs 9.19 for FY09

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