Right after Budget 2024 announcement, FMCG giant ITC Ltd witnessed heavy buying sentiment from investors, resulting in the stock to rise by over 11% on month-on-month basis. Currently, ITC stock is a little over Rs 490, and has room for further potential upside. Brokerages like Motilal Oswal, Emkay Global, Prabhudas Lilladher and JM Financial have recommended BUY or Accumulate on ITC.
ITC Share Price:
ITC share is currently at Rs 492.50 apiece with market cap of Rs 6,15,765.94 crore. The stock is near its 52-week high of Rs 510.60 apiece.
A month ago, on July 8, ITC stock was around Rs 443.50 apiece. Since then, the stock has zoomed by at least 11.05%. YTD, the stock is up by 5.40%.
In Q1FY25, ITC said that gross revenue was up 7.3% YoY in a challenging operating environment, driven by Hotels, Value Added Agri products and Leaf Tobacco. FMCG - Others and Cigarettes delivered resilient performance amidst subdued demand conditions. While green shoots of demand recovery emerged during the quarter in the Paperboards, Paper & Packaging segment, performance remained impacted largely due to cheap Chinese supplies in international markets including India and a surge in domestic wood prices.
In the first quarter, the company posted revenue of Rs 18,077 crore, up by 7.3% YoY, while PAT stood at Rs 4,917 crore, marginally up on year-on-year basis. EBITDA was up 0.7% YoY to Rs 6,295 crore.
ITC is set to demerge its hotel business which will be in the ratio of 10:1.
The demerger is in the split ratio of 10:1. 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 directly hold about 60% of ITC Hotels, proportionate to their shareholding in ITC. The balance stake of about 40% will be held by ITC.
BUY ITC Share Price:
JM Financial On ITC Share: (BUY For Rs 550 Target)
ITC's Jun-Q operating metrics were largely inline with our expectations. Cigarettes revenue growth was stable with volume growth of 3%, tad better than our forecasts (2.5%); EBIT margins were stable with impact of high input cost in base. FMCG business sales growth was inline but tad weaker vs trend seen in recent quarters, as intense summer & regional competition impacted certain foods and stationary categories. Among the cyclical businesses - Hotels business sales were below expectation (due to lower wedding, harsh summers/election led impact), Agribusiness surprised positively with positive growth after several quarters of decline while Paperboards continued to disappoint.
Govt. maintaining taxation on cigarettes in recent budget augurs well for Cig business for organised players like ITC. Further, FMCG business (festive & rural recovery) and Paperboard (weak base) should see recovery from H2FY24, thereby driving overall performance. This, along with sharper capital allocation strategy post hotel demerger, will drive overall return profile. We maintain our positive stance on the company.
Motilal Oswal: (BUY For Rs 575 Target)
ITC's core businesses of cigarettes and FMCG are witnessing steady growth. FMCG continues to enjoy industry leading growth over peers due to ITC's category presence (large unorganized mix, under-penetrated, etc.). Consistent margin improvement further provides confidence in growth without compromising profitability.
After the demerger of its asset-heavy hotels business, ITC's return profile will also improve. Margin improvements in the other FMCG business will further enhance return ratios and valuation multiples. Capital efficiency will further improve operating cash flow, leading to a healthy, sustainable dividend yield (3-4%).
With a stable tax on cigarettes, we anticipate sustainable growth in the business. We value the cigarette business at 20x Jun'26 EV/EBITDA (earlier 17x EV/EBITDA). We reiterate our BUY rating with an SOTP-based TP of INR575 (implied 30x Jun'26E EPS).
Prabhudas Lilladher On ITC: (Accumulate For Rs 519)
We cut our FY 25/26 estimates by 1.8%/0.7% & estimate 6.9% EPS CAGR over FY24-26 given marginal improvement in Other Income & pressure in Paper and Agri margins. ITC trades at 26.4x FY26 EPS with ROE/ROCE of 31/41.2% and ~75%+ dividend payout. We assign SOTP based target price of Rs519 (Rs491 earlier) as we roll forward to June26 and increase multiples for cigarettes and FMCG business. Retain Accumulate.
Emkay Global On ITC Share: (BUY For Rs 520 Target)
ITC saw a muted Q1, with 7% topline/flat PAT growth. Cigarette revenue grew 7% (volume growth of 2.75%) and EBIT margin stood at 73.8% (-33bps YoY). Aided by better agri business growth (+22%), non-cigarette business revenue grew 8%, but weak paper EBIT (-45%) pulled down overall EBIT by 11%. Steady cigarette tax-setting bodes well for legal industry volume recovery, with ITC likely to benefit; this drives an upgrade to our valuation multiple to 20x from 18x. Given lack of a near-term catalyst, we expect the stock to stay rangebound. We remain LT positive, as we see ITCâ€TMs businesses align well with economic growth. We await the next leaf tobacco cycle and cyclical recovery in other businesses, before turning positive; retain ADD on limited upside; new Jun-25E SOTP-based TP is Rs520 vs Rs470 earlier.
Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.
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