Here’s a transcript for the full interview with ET: Bullish on ITC and Indian Hotels: Rajat Sharma, Sana Securities
Top 2 recommendations based on Current Market Price
 ITC @ 322
End of Year Target – 380
ITC’s market share in domestic cigarettes = 80%. ITC’s popular cigarette brands include Insignia, India Kings, Lucky Strike, Classic, Gold Flake, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut and Duke & Royal.
A closer look at the segmental revenue of ITC highlights that the Company continues to generate a majority of its revenues from cigarette sales. In fact, if we compare the current revenue from cigarette sales with the same for the year 2011-15 (i.e. 5 years ago), there is hardly any change in the revenue stream. We are positive on the cigarette business of the Company on the back of widest brand portfolio of cigarettes, robust distribution network of ~2 million retail outlets.
Over the last 3 ½ years, the incidence of Excise Duty and VAT on cigarettes, at a per unit level, has gone up cumulatively by 98% and 124% respectively which has been passed on to the consumer. Historically, EPS for ITC has grown consistently at a rate of 15-20 % until 2013.
Going forward, I believe that there will not be any more excise and VAT duty hike on tobacco and once that happens, cigarettes volume will pick up and EPS will start improving going forward. The perfect case of this is Philip Morris in the United States – Read here.
10 YEAR PE ANALYSIS OF ITC
*Current P/E based on Price as on 10 May 2016
In this backdrop, ITC remains a robust company with strong fundamentals, diversifying rapidly into various sectors. However, it will be worthwhile to keep a close watch on the regulatory environment and the Company’s revenue streams.
For ITC Financials – click here
 Indian Hotels Company
My other pick was from the mid cap space – Indian Hotels Company. I am positive on the hospitality space based on the trends we have seen so far this year. Hotels in India reported 67.6% occupancy rate during January-March quarter, with extremely healthy Average Room Rates (ARRs). During the same period, demand for hotel rooms in India grew by 8.9% and the supply increased 3.6%.
In the years to come, I believe that India has the potential to emerge as a major tourist destination on account of various policies like visa on arrival, tourist boost and boost in business related travel particularly due to improvement in domestic economy and higher FDI across various sectors. All this will have a direct positive impact on India’s hospitality industry.
Grossly undervalued share
Indian Hotels’ current market capitalization is Rs. 10,436.84 Cr. The total net debt on the books is Rs. 4,833 Cr which gives the Company an enterprise value of Rs. 15,270 Cr which I believe is drastically lower for a company with 130+ hotels across various categories (owned + managed).
For Indian Hotels Financials – click here