Kotak Securities recommends 'Buy' on ITC, NBCC; here's why

Stocks to buy today: Shrikant Chouhan of Kotak Securities has recommended a 'Buy' on ITC and NBCC, with fair value seen at ₹365 and ₹115, respectively.

ITC – BUY

CMP – ₹288  FV – ₹365  Resistance – ₹292-₹298  Support – ₹284-₹280  Early trade trends, based on our checks, suggest that the volume impact on ITC's cigarette portfolio has been relatively contained (5-10% decline), while the EBIT impact has been significant (~30% decline) due to the partial tax absorption and adverse mix shifts, albeit broadly on expected lines.  We expect this EBIT headwind to moderate through FY27E, supported by calibrated pricing actions and the likely migration of price-sensitive KSFT and RSFT consumers to EBIT-neutral Longs and premium DSFT variants. We upgrade the stock to BUY from REDUCE, with a SoTP-based FV of ₹365 (₹330 earlier), implying 22X September 2028E EPS.  We expect the EBIT impact to moderate through the year as ITC takes calibrated pricing actions in KSFT and RSFT, with the bulk of the increases flowing through to EBIT, while leveraging Longs and premium DSFT variants to enable EBIT neutral downtrading. ITC is targeting 4QFY27E profitability to be EBIT-per-stick neutral versus pre-tax-hike levels; we estimate adjusted cigarette EBIT decline moderating to ~7% in 4Q from ~32% in 1Q, reflecting some volume loss and adverse mix impact.  Key monitorables include (1) further RSFT price hikes, (2) competitive actions by GPI in Marlboro Compact and the recently launched Marlboro Vibe Fusion (84 mm at Rs20) and (3) ITC's ability to transition price sensitive KSFT and RSFT consumers to EBIT-neutral alternatives such as Longs, premium DSFT variants and other new products. While volume trends are tracking ahead of our expectations, mix deterioration is more adverse; overall, we continue to expect a high-teens decline in FY2027E cigarette EBIT.  We have tweaked estimates and increased our SoTP-based FV to ₹365 (from ₹330), which values the cigarette business at 16X September 2028E PE (15X earlier). At the CMP, the stock offers a dividend yield of about 4.5% and implies September 2028E PE of 10X for the cigarette business. We estimate an 18% decline in cigarette EBIT in FY2027E, followed by 14% growth in FY2028E.  READ | Aurionpro, Westlife, Aarti Ind among Anand James top stock picks today 

NBCC – ADD

CMP – ₹107  FV – ₹115  Resistance – ₹111-₹115  Support – ₹105-₹102  NBCC (India) Ltd is a Navratna PSU company engaged in the business of project management consultancy (PMC) including redevelopment, EPC contract and Real Estate development. NBCC operates on self-funding model in redevelopment project which leads to strong balance sheet with net cash on its book.  NBCC continues to hold a robust order backlog of over ₹1.13 lakh cr on a standalone basis and ₹1.3 lakh cr on a consolidated basis. Order Book provides strong revenue visibility for the next 3–5 years. Management emphasized that redevelopment has emerged as NBCC's largest longterm opportunity.  The Government of India and several state governments own large portfolios of aging residential colonies and office assets that require modernization. As per management, NBCC enjoys superior execution capability over its PSU peers after successful redevelopment of projects such as Moti Bagh, East Kidwai Nagar and the ongoing 7 GPRA redevelopment program in Delhi.  Several proposals are at advanced stages of approval and could translate into significant business opportunities over the coming years. Based on robust pipeline of projects, the management is positive on taking the order backlog to ~₹2 lakh cr by end of FY27 through a combination of redevelopment projects, PSU land monetization opportunities and government infrastructure assignments.  NBCC highlighted its growing role in resolving stalled housing projects, having delivered over 32,550 homes in the Supreme Court-mandated Amrapali project, significantly enhancing its credibility. Building on this success, the Supreme Court has also entrusted NBCC with reviving Supertech’s stalled projects.  In real estate business, the resolution of the long-pending Ghitorni land dispute in South Delhi is a major positive, unlocking 21.23 acres of prime land with an estimated revenue potential of ~₹8,500 cr and profit of ~₹4,000–₹5,000 cr, though management clarified that profit recognition will largely occur in FY28–FY29 upon handing over possession  Currently, around ₹28.6k cr/33.5k cr of the standalone/consolidated order book is under execution, and this is likely to reach ~₹60kcr in FY27 as key large projects like MAHAPREIT, J&K, Supertech, etc likely to see movement on the ground. The company is targeting ₹14-15k cr of revenue in FY27, which is expected to grow further to ₹21-22k cr in FY28 with EBITDA margin of ~6%. We have ADD rating on the stock with SoTP-based fair value of ₹115.  (Disclaimer: This article is by Shrikant Chouhan, head equity research, Kotak Securities. Views expressed are his own.)