1:10 Split Coming Up: Mega FMCG Stock ITC With Low PE Ratio, Gains 23% In 6 Months; Short-To-Long Term Target

Super FMCG giant, ITC Ltd's stock price has rallied more than 23% in six months, turning around its bearish tone to bullish trend. ITC shares on August 19, neared its 52-week high levels and held above Rs 500 levels. There is the potential of buying with 1-year target nearing Rs 540 and in the long-term target around Rs 585.

ITC is a special FMCG stock which has the potential for double-digit gains ahead. Despite being above Rs 500, ITC shares are undervalued with a low price-to-equity ratio. ITC will be in focus ahead due to its demerger of the hotel business in a 1:10 share swap ratio.

ITC's share price ended at Rs 501.15 apiece on BSE, with a market cap of Rs 6,26,648.51 crore. The stock touched an intraday high of Rs 509.35 apiece on August 19, which was a few paisas away from its 52-week high of Rs 510.60 apiece. While currently, ITC share is up by nearly 26% from its 52-week low of Rs 399.30 apiece.

YTD, ITC share price is up by 7.3% on BSE. While in six months, the gain is a whopping 23.4%. ITC's month-on-month performance is also healthy with the upside of 7.5%. In a year, ITC stock rallied 12%. In the long term, ITC stock zoomed by 112.35% in 5 years, which makes it a multi-bagger on BSE.

As per Trendlyne data, ITC stock rose 13.54% and underperformed its sector by 24.22% in the past year. While the Price to Earning Ratio is 30.67, lower than its sector PE ratio of 43.49. Additionally, the company's Debt to Equity Ratio of 0 is less than 1 and healthy, implying that its assets are financed mainly through equity.

Also, the data highlighted that ITC's Return on Equity(ROE) for the last financial year was 27.45%, more than 20% in the last financial year, indicating an efficient use of shareholder's capital to generate profit. Moreover, Mutual Fund Holding increased by 0.37% in the last quarter to 11.93.

ITC is set to demerge its hotel business which will be in the ratio of 1:10. Because as part of the merger process, for every (Ten) Ordinary Share of the face and paid-up value of Re. 1 each held in ITC, 1 (One) equity share of the face and paid-up value of Re. 1 in ITC Hotels. After the completion, ITC's stake will be reduced. The shareholders of ITC will hold about 60% of ITC Hotels directly, which is proportionate to their shareholding in ITC. The balance stake of about 40% will be held by ITC.

BUY ITC share price?

As per Trendlyne, the consensus recommendation from 34 analysts for ITC Ltd. is BUY. EPS is expected to grow by 6.7% in FY25. The short-term target which is of 1 year is set at Rs 538.12, hinting at a 7.31% potential upside ahead.

The highest target on ITC is set by Jefferies. The global brokerage has upgraded its stance in ITC from 'HOLD' to 'BUY'. In its note, the brokerage stated that 'No news is great news'.

While upgrading ITC stock to buy, Jefferies stated that it is a clear winner with the government leaving tobacco taxes unchanged. With clarity on cigarette taxation, Jefferies now believes that ITC is well-placed to accelerate cigarette revenue growth through a blend of volumes, price hikes and a better mix of input costs.

The last time hike on tax related to tobacco was 2% in February 2023, and Jefferies believes this should enable ITC to focus on volumes by opting for minimal product price hikes. Jefferies expects goods and services tax to stay stable until March 2026, which is still central government settles its states' dues. However, Jefferies also added that if there is a modest price hike this year, it will set a base for next year.

Other brokerages like Motilal Oswal and BOB Capital Markets have set a Rs 575 target price on ITC with a buy recommendation.