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Not exciting enough
* ITC’s Q4 performance was largely in line, with 10% EBITDA growth. Adjusted PAT growth at 16% was higher due to lower tax and higher other income. Cigarette sales increased 11% (volumes grew ~8%), but EBIT growth remained muted at 10% due to weak mix.
* FMCG comparables sales grew 10%, in line with peers, while EBITDA for the quarter and full-year improved by 31% and 51%, respectively, in line with our expectations. Higher margin expansion in Paper and Agri also led to the overall EBIT growth of 12%.
* Weak cigarette mix and limited price hikes are unlikely to drive upsides to cigarette EBIT growth (est. 10% EBIT growth), in our view. We believe volumes may decelerate on higher comparables and possible tax increase (after 2 years) remains an additional risk.
* Given a 10% earnings CAGR and downside risks from tax increases, current valuations at 24x FY21E EPS do not look attractive. We maintain Sell with a revised TP of Rs272 (Rs260 earlier), rolling forward to Mar’21 EPS.
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