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Saturday, June 04, 2005

ITC & Mid-Day Multimedia


ITC 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,854
Current market price: Rs1,557.70

Price target revised

ITC reported an exciting growth of 18% in its revenues for FY2005 to Rs7,635 crore on the back of a strong growth in all its businesses. The revenues from the hotel business were up 124% year on year (yoy), that from the paperboard business was up 25% yoy and the revenue from the fast moving consumer goods (FMCG) business excluding that of cigarettes grew by 85% yoy. The cigarette revenue grew by 8.4% while the revenue from the agri-division grew at 4.2%. At 37% the operating profit margin (OPM) was stable for FY2005 while the post-tax profit (pre-exceptional) grew by 15.3% yoy to Rs1,837 crore. The reported numbers include Rs354 crore of exceptional items (profits) relating to the resolution of certain past litigations in favour of ITC.

We believe that all the non-FMCG businesses of ITC are gathering momentum and poised for a robust growth. The issues relating to excise and luxury taxes are now solved and the future litigation risks are at the bare minimum. ITC has announced a bonus/stock split and a dividend of 310% (40% pay-out). At 15x FY2007E earnings and an 18% compounded annual growth in the profit over the next three years, the stock's valuations are attractive vis-à-vis that of its peers. We are maintaining our Buy recommendation on ITC with a revised price target of Rs1,854.

 

Mid-Day Multimedia 
Cluster: Ugly Duckling
Recommendation: Book Profit
Current market price: Rs65.7

Book out 

One of the triggers for the stock in the near future could have been the new rate card that was expected in the month of May. However, the delay in the release of the new national readership survey has resulted in the delay in the release of the new rate card. The new rate card may also get delayed further looking at the head-on competition from "Mumbai-Mirror" in terms of the invitational price (Rs2 per copy as compared to Rs3 per copy for Mid-Day) and invitational advertisement rates.

As there are no positive triggers for the stock in the near term (the only one being the new FM radio policy expected at the end of June), we recommend investors to book out of the stock.