NOMURA recommends 'Buy' on ITC at target price Rs 392 against market price Rs 345 on August 22.

Commenting on the investment rationale, broker said, "Press reports have indicated that the company has been looking to enter the diary segment, and with a large unorganized and under-penetrated market to tap, we believe the dairy business could be a very attractive opportunity for the company in the medium term.

ITC trades at 21.6x FY16F vs. sector average of 27.7 ITC trades at a significant discount to the sector average at current levels. With uncertainty on the tobacco tax increases now out of the way for another year, we believe the stock will see a period of steady returns in the next year. We expect the company to deliver another year of solid earnings growth in FY15 and, with FMCG business profitability showing an improvement, we expect the stock to close the gap with sector average valuations.

ITC continues to be our top pick in the large cap space within the India consumer sector. The opportunity in the dairy sector can be another medium-term growth driver for the company, which will add to the attractiveness of the stock, in our view. The company could generate more than Rs 18 billion in profits by 2018F from the FMCG business. We maintain our Buy rating on ITC with a TP of RS 392."

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