1:10 Split, 3 Bonus, 29 Dividends: BUY FMCG Giant ITC For Rs 595 Target; Stock Down 9% YTD After Demerger

FMCG giant stock, ITC Ltd has witnessed steep correction since its demerger of ITC Hotels business came into effect from January 1, 2025. Year-to-date, ITC shares have dropped by 9% on BSE. The FMCG heavyweight is at a mid-point between its 52-week highs and lows. The latest to recommend BUY on ITC due to its demerger of ITC Hotels is Sharekhan, while the brokerage maintained its Rs 595 target price.

ITC Share Price:

After market hours of January 23, ITC share price stood at Rs 440.20 apiece on BSE, up by 0.8% with market cap of Rs 5,50,765.49 crore. The stock is nearly Rs 60 away from hitting its 52-week high of Rs 500.01 apiece, while it is also Rs 62.5 away from touching its 52-week low of Rs 377.74 apiece --- hence a mid-point!

YTD, the stock is down by 9% on BSE so far. On a month-on-month and six-month basis, ITC has dropped by 8% and 11% respectively.

ITC's demerger of ITC Hotels has come into effect from January 1, 2025. Now key expectations will revolve around ITC Hotels listing on BSE and NSE, post the deal.

Also, the FMCG giant has rewarded investors with bonus issues, stock splits and dividends over the span of 24 years.

Dividends: The FMCG giant has delivered up to 29 dividends since July 2001, as per Trendlyne data. In the last 12 months, the dividend payout is Rs 13.75 per share.

Bonus Issues: The company has a strong track record of bonus shares. The last bonus was of 1:2 ratio in July 2016, while ITC delivered 1:1 and 1:2 bonus ratios in August 2010 and September 2005. ITC has overall delivered 3 bonus shares.

Stock Split: Further, ITC has carried a single stock split so far. In September 2005, ITC's shares split from Rs 10 face value to Rs 1 each, hence a ratio of 1:10.

Sharekhan On ITC:

In its latest report, Sharekhan said, "As of FY2024, the ITC hotel business contributed close to 4% of consolidated revenues and EBITDA of ITC. Post listing, the hotel business will have zero debt and a cash-rich balance sheet, and with management incrementally focussing on asset-light managed hotel mix, the cash flow generation will significantly accelerate going forward."

Further, Sharekhan's note said, " BAT (the second largest shareholder holding ~15%
stake) have no intention to hold a stake in the hotel business, there is a possibility of ITC itself buying out the stake from BAT to give it a chance to exit and increase its holding in the hotel business to 55% and secondly, ITC can bring strategic investors on board to provide an exit to BAT. As in the existing ITC business, there is a permissible limit on FDI to the extent of 34%; however, in the Hotel business, the FDI limit is allowed to increase to 100% post regulatory and shareholder approvals."

On the valuation, Sharekhan's note said, "Retain Buy with an unchanged PT of Rs. 595 (not adjusted for hotel business demerger): Volume growth of the cigarette business is expected to be sustained, while ITC has undertaken relevant strategic actions to revive growth in the non-cigarette FMCG business in the near term. After the demerger of the asset-heavy hotel business, ITC's return profile will substantially improve in the coming years. Stock trades at 23x and 20x its FY2026E and FY2027E earnings, respectively. Valuation continues to be at a discount compared to large peers, which makes it a preferred pick in the space. We maintain a Buy on the stock with an unchanged SOTP price target (PT) of Rs. 595."