This Large Cap FMCG Stock Has 18.1% Potential Upside In 1 Year, Buy Says Emkay Global

 

Key takeaways from analyst meet of ITC according to the brokerage

The brokerage in its research report has highlighted that "In cigarettes, management plans to maximize cigarette potential within the tobacco basket, given that cigarette consumption stands at just 8% of tobacco consumed. The cigarette portfolio is future-ready with in-house technology benefits and the launch of more variants/formats. The portfolio offerings are up 2x in the last eight years, offering a wide portfolio at multiple price points. New launches contribute 11% of overall volumes. It highlighted better recovery trends in cigarettes after the second Covid-19 wave and has gained 100bps in market share. Commentary indicated improvement in the mix, with stability in the tax regime and constant innovations, complemented by strong last-mile execution."

According to Emkay Global Financial Services Ltd "In FMCG, management plans to fortify the core and leverage adjacencies. Core brands have displayed strong, ahead-of-industry growth in the last 10 years. Aashirvaad Atta grew 5x with an 18% CAGR, cream biscuits saw a 16% CAGR, the Bingo bridges segment reported a 25% CAGR, and Yippe Noodles posted a 42% CAGR. In personal care, ITC plans to focus on future-facing categories and drive premiumization with innovations driving affordability in premium categories. Savlon and Nimyle have seen strong success after the acquisition (up 14x and 5x, respectively). ITC expects margin improvement to continue over the longer term and expects industry-leading margins across categories, led by manufacturing cost efficiencies, mix improvement and accretive acquisitions. High inflationary pressures are, however, likely to impact the margin trajectory in the near term."

The brokerage has also reported that "The total reach has gone up 1.2x (+6.6mn outlets), with the direct reach going up 1.4x (+2.5mn outlets) and the stockist network growing by 6x in the last five years. The e-commerce channel contributes 7% of overall sales (14% contribution in personal care). In hotel business segment is yet to recover (40-50% of pre-Covid levels), while the leisure segment is seeing stronger growth. The focus is on moving toward an asset-light model by increasing managed rooms from 25% to 45% in five years. Management sees tremendous potential in ITC Infotech and showed interest in exploring inorganic opportunities and a separate listing at an appropriate time. In the agribusiness, ITC MAARS will continue to see more investment, supporting the eChoupal initiative and creating a robust digital eco-system to deliver customized solutions to farmers."

Buy ITC With A Target Price of Rs 270 Says Emkay Global

The brokerage has claimed that "ITC in its analyst meet highlighted its growth initiatives across divisions and is hopeful of delivering double-digit growth ahead. The company does not expect a major change in cigarette taxation and continues to target long-term improvement in FMCG margins, though it could be challenging in the near term due to high inflationary pressures. Management seems open to acquisitions in FMCG/IT and exploring unlocking potential at an opportune time, which could be a positive catalyst. Maintain Buy with a TP of Rs270."

Disclaimer

The stock has been picked from the brokerage report of Emkay Global Financial Services Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.