Medium Term Buy Call – ITC Limited at 186

ITC Limited

Company is the largest manufacturer of cigarettes in India. It is a member of BAT Group of UK. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today. ITC ranks among India's "10 Most Valuable (Company) Brands", in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week.

Products & services-

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.

Company Businesses can be diversify into various segments-
Lifestyle Retailing
Greeting, Gifting & stationary
Safety matches
Paperboards & packaging-
Paper boards
Speciality Paper
Agri-products Exports
Leaf Tobacco

Cigerettes--Company is the market leader in cigarettes manufacturing in India. Company provides large range of international quality brands; and has a leadership position in every segment of the market. Its highly popular portfolio of brands includes India Kings, Gold Flake, Navy Cut, Scissors, Capstan, Berkeley and Bristol. Company's leadership is continuously enhancing product values through significant investments in product design, manufacturing technology, quality, marketing and distribution strategies. Company made huge capital expenditure in last few years in its cigarettes business. Company's share of filter cigarettes in the country is more than 70%. Company has launched four brands of international quality standards- Checkers, Hi-Val, Royale Classic and Gold Crest - in the extremely competitive US market. ITC also launched Royale Classic, Gold Cut and Scissors Filter Kings cigarettes in the Middle East. Its manufacturing facilities are located at Bangalore, Munger, Saharanpur and Kolkata.

Foods-Company made its entry into the branded & packaged Foods business in 2001. Company launched "Kitchens of India" brand. Since than, company is launching many brands in the Confectionery, Staples and Snack Foods segments. Packaged foods business is an industry to leverage company's balance sheet in the long-term. Company Foods products available in the market today have been based on consumer insights developed through broad market research. Except current portfolio of products, several new and innovative products are under development in the company's Product Development facility. Foods business is having 4 primary categories, i.e. ready to Eat Foods, Staples, Confectionery, and Snack Foods. Company is having brands in this categories are- Kitchens of India, Aashirvaad, Sunfeast, Mint-O, Candyman.

Lifestyle Retailing-Company's Lifestyle Retailing Business Division has recognized a nationwide presence with its Wills Lifestyle chain of exclusive specialty stores. It has expanded its basket of offerings to the premium consumer with Wills Classic formal wear, Wills Sport, Wills Club life evening wear and eye wear from Valentino of Italy.

Greetings, Gifting & stationary-Company has now become the second largest player in India's greeting cards industry with its 'Expressions' range of Greeting Cards. Company has strategically leveraged its expertise in Paperboards and Packaging, and its unique capability to manufacture environment-friendly Elemental Chlorine-Free pulp and world-class paperboards. ITC's 'Paperkraft' and 'Classmate' ranges of notebooks launch also emerged it as a serious and significant marketer of Stationery brands for school and college students. ITC's extensive India-wide distribution network enables its greeting cards reach over 12000 multi brand outlets in over 700 cities nationally.

Safety Matches-Company brands like iKno, Mangal Deep, VaxLit, Delite and Aim are having good market presence. Aim brand has already become the largest selling brand of Safety Matches in India within just one year of its launch.

Agarbattis-ITC has launched brands like Spriha and Mangaldeep across a range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa. These brands have been priced well to cater every level of consumers at various price segments.

Hotels-Company entered the hotels business in 1975 by acquisition of a hotel in Chennai. The ITC-Welcomgroup brand has become synonymous with Indian hospitality. Today amongst India's finest and fastest growing hotel chains, it consists of over 66 hotels across more than 50 destinations in India. These include super deluxe and five star hotels, heritage palaces, havelis and resorts and full service budget hotels.

Paper Boards, Speciality papers, packaging----Company is one of the world's most modern and contemporary manufacturers of packaging and graphic series of boards. Company's Paperboards business has manufacturing capacity of over 360,000 ton per year and is India's market leader across all carton-consuming segments including cigarettes, foods, beverages, pharma, personal care & toiletries, durables and match shells. Packaging division supplies to the Company's Cigarettes business. Its client list includes national and international companies like British American Tobacco, Surya Nepal Private Limited, VST Industries, GTC, UB Group, Shaw Wallace, Seagrams, Allied Domecq, Whyte & Mackay, Hindustan Lever, Tata Tetley and Nestle, Reckitt Benkiser India Limited, JK Helene Curtis, etc.

Agri-Exports-Company's International Business Division is the country's second largest exporter of agri-products with exports of over Rs. 500 Crores. Its domestic sales of agri-products are also of a similar scale. It currently focuses on exports of Feed Ingredients - Soyameal, Foodgrains - Rice (Basmati & Non Basmati), Wheat, Pulses, Coffee, Black Pepper, Edible Nuts - Sesame Seeds, HPS Groundnuts, Castor oil, Marine Products - Shrimps and Prawns, Processed Fruits - Mango, Papaya and Guava Products.

Tobacco- from 90 years, company's Indian Leaf Tobacco Development Division has worked closely with farmers to grow quality cigarette tobaccos. It is the largest buyer, processor and exporter of cigarette tobaccos in India. Company buys almost 40 per cent of all cigarette type tobaccos grown in India. Company has large inventory of quality tobaccos for Indian cigarette tobaccos. This strategic policy insulates customers from crop fluctuations.

1-Oct-2008- 31-Dec-2008 (Third Quarter)
Financial Results (Rs. Lakhs)
Net Sales/Income from Operations 43,351.10
Other Operating Income 2534.00
Net Profit for the period 90321.00
Basic EPS (in Rs.) 2.40

Company planned huge capital expenditure in coming years to drive its future earnings. Company diversified its operations and aim to create multiple Earning drivers for future. Strong distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills makes it the one of the safest investment for future. At the current market price, ITC is trading at attractive valuation of 18.47 X multiple of estimated FY2010 earnings. We recommend "Strong BUY" on ITC with medium to long-term investment horizon.

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Disclaimer: The information and opinions contained in the document have been compiled from sources believed to be reliable. We don't warrant its accuracy, completeness and correctness. Stock market is highly unpredictable & risk involved in investment into the securities.

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