Brokerages Turn Bullish On ITC; Re-Enters Top 10 Most Valued Indian Firms

The tide has changed for ITC Ltd after the company announced a higher dividend payout plan.

Shares of the FMCG rose 7.5 percent on Friday to Rs 175.60 on NSE. Trading higher for 4 consecutive days, the company's market capitalization was above Rs 2.13 trillion, helping it re-enter the top 10 most valued listed Indian companies by market cap.

ITC: Quotes, News

BSE 293.450.6 (-0.20%)

NSE 292.900.05 (-0.02%)

On Wednesday, the company announced an update in its dividend payout policy saying that its board has agreed to offer 80-85 percent of its profit after tax (PAT) as dividend. The update will be effective from the current financial year.

The stock hit multi-year low of Rs 135 last week, more than 50 percent lower than its 52-week high of Rs 310.

Brokerage firm JM Financial said the stock is too cheap to ignore. It has placed a 'buy' call on ITC with a target price of Rs 315, which is a 95 percent upside from Thursday's closing price of Rs 161.95

"We see deep value in the stock at the current price and find it too cheap to ignore. ITC's operating profit growth even during the past three years (FY16-19) was at 8.4 percent CAGR -a pace similar to that of Asian Paints' (8.4 percent CAGR) and much higher vs Dabur's (4.6 percent) but its stock price is down more than 25 percent over the past four years while Asian Paints' the stock has doubled and Dabur's has grown 73 percent during the same period," it said.

ICICI Securities also has a 'buy' call on ITC with a target price of Rs 220, a 36 percent upside.

The brokerage said with the increase in the guided payout ratio to 80-85 percent from the current 70 percent, the company has addressed an important investor concern of capital allocation, particularly hotels capex which has mostly been EVA (economic value added) negative.