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Espirito Santo Securities in a note said, a confluence of events (a macro slowdown and a sharp increase in excise duty) will prompt ITC to make steep price increases in its cigarettes business, to deliver over 15 per cent EBIT growth. This, in turn, will risk FY13E volumes.
“Our FY13 estimates could come down by more than 10 per cent in such a scenario. For now, we nudge up our FY13 estimates by three per cent and our fair value by two per cent to Rs 174, but reiterate our ‘Sell' rating.
Mr Ajay Jaiswal of Microsec, however, prefers ITC (more than 54 per cent weight on the BSE FMCG Index) as a safe haven because of its strong earning visibility, dominant leadership, inelastic demand for cigarettes, domestic consumption story, solid fundamentals and strong brand value.
At the current price of Rs 202.15, the stock discounts its FY12E EPS of Rs 7.86 by 26x and FY13E EPS of Rs 9.32 by 22x. We value the stock at a target P/E multiple of 24x based on its FY13E EPS.
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