Large Cap Stock To Buy - ITC

This is one of the 3 stocks for investment portfolio recommended by Rajen Shah, Angel stock broking. Checkout analysis on this FMCG, Hotel, Cigarette, Apparel and Food giant.

Here are excerpts of his discussion on one of the business news channels.

I am extremely bullish on ITC. In fact about a year-and-a-half back when it was quoting at about Rs 185-190, I had given Rs 1,000 target in the next five years and I think already one and a half year is completed so in another three and a half years, my target for ITC is about Rs 1,000 per share. It would sound absolutely irrational talking about Rs 1,000 for ITC but I have the strongest conviction that this stock will be a four-figure stock in the next three-and-a-half years.

Interesting things are happening in ITC. Let me talk about the core business currently, which is tobacco. If you see the segment wise result, tobacco business reported almost 16% kind of an improvement in the bottomline in the last quarter and it is growing in double-digits. If you see the bidi market in India, it is three-four times the cigarette market. With more income in the hands of rural India, anybody would like to upgrade from a bidi to cigarette. This prosperity of India which is going to take place because of the economic growth is going to lead to double digit volumes growth in case of the cigarette business. That is one thing.

The hotel business will be doing very good numbers next year because of what is happening with the economy and the Commonwealth Games. The paper business—if you see Ballarpur—the number one paper company, was not able to report the kind of margins ITC reported in last quarter. Profits improved 80% in the last quarter as far as the paper segment-wise numbers.

Then we are talking about FMCG business where the losses have come down significantly and it is going to happen even in the coming quarters but the most interesting thing which I am observing in case of ITC and I think ITC will not be called a tobacco company in the next three-and-a-half years, it could be called India’s play on the agriculture space. I think the e-choupal concept—I had gone to Ludhiana, from Ludhiana I was travelling to Delhi via road and I came across this e-choupal thing, which is currently catering to about 25,000 villages and maybe they have target to cater it to about 3 lakh villages over the next five-six years.

This is a very interesting concept where the farmer walks in with his produce. He can see the international price, the domestic price and then sell the produce to ITC. ITC on its part basically use it for its own captive consumption. Like if red mirchi sold off, ITC grinds it and markets it under its own Ashirwad brand. So this is a big business. Whatever money the farmer makes, he uses it for buying something and from the same retail outlet. So ITC is basically doing what Pantaloon and Reliance and Bharti are doing in the urban part of the country. It is basically setting up these retail outlets in the rural part of the country and it makes money both ways.

When the farmer sells the produce to ITC and with that money the farmer buys something so there also it makes the margin. So it is a very interesting concept and I think even it is getting into contract farming – so I think it is a fabulous story and if you see the agribusiness of ITC, it is growing at 100%. Last year it reported about Rs 200 crore profits. This year it should be more than Rs 450 crore from the agribusiness. So I think agri is one thing which ITC should be doing exceptionally well.

We have a nine-month target of Rs 350 for ITC because this year ie for 2011, we are expecting about Rs 14 kind of earnings for ITC. But yes I stand by my words that in next three-and-a-half years, ITC will touch Rs 1,000.

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