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us121
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Joined: 03/Dec/2006
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   Posted: 16/Mar/2007 at 9:52am |
Report on Sharekhan on ITC:
ITC
Cluster: Apple Green
Recommendation: Buy
Price target: Rs200
Current market price: Rs142
VAT on cigarettes
Key points
- ITC has been underperforming the market for quite some time owing to fears of the implementation of the value added tax (VAT). We believe the stock would continue to underperform till clarity emerges on how VAT would be implemented and how the subsequent price hike would affect the company's volumes.
- Historical data shows that whenever there has been a price hike in the range of 10-12%, cigarette volumes have dipped. We believe that a 12.5% VAT may result in a 8-10% price hike across segments. Consequently, we may see lower growth or no growth in volumes in 2008.
- We believe that with VAT getting implemented, our earnings per share (EPS) estimate for FY2008 would change by 9% from Rs8.8 to Rs8, which is still a 9.6% growth over the FY2007 EPS. At the current market price of Rs142, the stock is quoting at 17.7x its FY2008E EPS and 10.7x FY2008E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a revised price target of Rs200.
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ABILITY will get u at d top. CHARACTER will retain u at d top
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Vivek Sukhani
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Posted: 16/Mar/2007 at 10:27am |
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Good piece us121. But this FMCG space is a little tough space to track. They are big big brands, but are also facing competition from one another. Its all a call on who's going to the Star-War..... ITC has a multi-faceted approach, is into hotels, retail, e-choupal and paper besides cigarattes but then both have big money spinners.
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tigershark
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Posted: 16/Mar/2007 at 10:33am |
bengal has introduced vat at 12.5% expect cigarette prices to go up by 10 -12% question is will smokers stop smoking at the least they may go for a more affordable brand.liquor is also out of the purveu of vat and taxes are state controlled but of late liqour sales have been booming impact of vat on the short term may be negative.
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understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things
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basant
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Posted: 16/Mar/2007 at 10:46am |
our earnings per share (EPS) estimate for FY2008 would change by 9% from Rs8.8 to Rs8, which is still a 9.6% growth over the FY2007 EPS. At the current market price of Rs142, the stock is quoting at 17.7x its FY2008E EPS and 10.7x FY2008E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation on the stock with a revised price target of Rs200.
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Why don't these guys write about PEG (Price earnings to growth)?
Edited by basant - 16/Mar/2007 at 10:48am
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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Vivek Sukhani
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Posted: 17/Mar/2007 at 1:14pm |
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basant, I beleive we must treat these games little bit differently. They are big big brands. They enjoy Investors' faith( Investors', mind you, not traders). I see no reason why we should assign thenm lower multiples compared to the Tech companies. They dont depend upon boom in US economy. They are mostly debt free, have excellent track record, yield quite decently.Also, you can never fear doing an averaging in them. So, Growth will be nothing but a feather in their cap but then dont some caps look better with or without feathers??????
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basant
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Posted: 17/Mar/2007 at 1:34pm |
Personally I am more of an ITC fan then a HLL. But if companies start growing at 12% - 15% then surely if not this year then the next those PE's would come down. Even if the PE does not come down returns would be limited to the growth rates only 12%-15%.
I think that ITC could have seen the worst but just because so many research houses are bullish makes me cautious on this one. Over the past 4 years there have been numerous investment houses backing HLL because of the increase in rural India spend and what not. All this whilke while HLL's profits have growth the huge PE overhang of the late 90's have capped the return.
The index has quadrapled but HLL remains where it was. While ITC will not go the HLL way since it has a formidable entry barrier and huge market share with superb pricing power the days of making 20%+ CAGR seems to be under a cloud!
Now if someone wanted to buy a fast growing lean and fit FMCG why not look at Marico? Smaller niche companies always grow faster then the bigger elephants.
Co-inciodentally a friend of mine who is a stauch RD fan has been holding VST Industries for over 4 years always arguing about how cheap this company was with respect to ITC but while ITC has beaten the market. VST has stayed almost where it was.
He still argues for VST though.
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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deveshkayal
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Posted: 18/Nov/2007 at 10:34pm |
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YC Deveshwar on the cover story of Outlook Business and Business Today.
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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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monu_duggad
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Posted: 15/Feb/2008 at 6:11pm |
well...gone r the days of HUL trading at premium to ITC..........
today both are available at similar p/e's...
HUL : 205 ...eps of 9.6 for CY09...p/e....~21.3
ITC : 202..eps of 9.8 for FY09...p/e.....20.6.................
HUL has come a long way since the days of 33-35 p/e...
still old investors refuse to sell HUL (holding since 10,15 years.....just like they dont want to sell infosys or reliance)
..basantji wud be in better position to throw light on the kind of cult status which hul used to enjoy
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If you think you can,You Can
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