ITC

ITC witnessed strong volume growth of 5 per cent and 7 per cent in the June and September quarters, respectively, and expects this trend to continue. Channel checks suggest a volume growth of around 7 per cent in December quarter. Moreover, cigarette companies have put forward arepresentation to the government to introduce smaller filter cigarettes, which could help counter the increasing contraband menace.

In the FMCG business, ITC has maintained clear focus on cost curtailment since the past few quarters and expects losses to reduce by around 20 per cent each in 2009-10 and 201011. The hotel business, which was a drag on the numbers, is now looking up with a 10-15 per cent sequential rise in average room rates (ARR) and occupancy of over 70 per cent. Compared to a year-on-year decline in EBIT (earnings before interest and tax), the hotel business is expected to show flat year-on-year EBIT growth in March 2010 quarter and a much stronger 2010-11. The agri and paper businesses are expected to repeat their strong performance as witnesses in September quarter.

Given the improved outlook across businesses, the brokerage has upgraded its 2009-10 and 2010-11 EPS estimates by 2 per cent and 6 per cent, respectively. At Rs 256, the stock is trading at a PE of 24.5 times and 20.5 times estimated earnings for 2009-10 and 2010-11, respectively