ITC recorded better than expected results driven by robust growth across categories. The strong growth in the cigarette business indicates continuing strong volume growth. Outlook for the non-cigarette businesses such as hotels and paper also remains positive with continued demand buoyancy. The other FMCG businesses are also rapidly expanding, while losses are being gradually curtailed.
The company has planned a capex of ~Rs150bn for the next 3-5 years. ITC’s non-cigarette business has been growing rapidly over the last few quarters and now contributes to ~70% of net sales (9M FY07). Given the positive outlook for Indian tourism industry due to increasing foreign tourists, we expect ITC to grow its hotels segment both organically and inorganically. Also, strong cash flows from cigarette business can be invested in scaling up other segments. At the current market price of Rs175, ITC is trading at 24x FY07E EPS of Rs7.3 per share. We maintain our ‘Buy’ rating on this stock.