ITC Share: Vishal Awake! ITC has been on the rolls this year and may increase by up to 30%

Riding on strong fourth quarter data on strong growth in the cigarette business, shares climbed to 3-year highs recently, while benchmark indices struggled to contain the bears.

Shares of the FMCG major hit a 52-week high of Rs 282.35 in May and have gained 23 per cent so far this year. With the recent rally in share prices, there has been an increase in over-the-counter exposure by foreign portfolio investors (FPIs) after four quarters of sell-offs. Market experts are now overweight on the stock and believe that it is in a bullish trend and will continue to outperform.

Analysts Ventura Securities also share similar opinion and said that nifty 50 stocks, ITC is one of the few stocks that offer a strong growth opportunity with an attractive dividend yield of 4.19 per cent.

The brokerage has initiated coverage on the stock with a strong ‘Buy’ rating with a target of Rs 350, which represents a growth of 30 per cent over the next 18 months.

Although the cigarette to hospitality major has done poorly on the road for many years, that is set to change in no time. According to Ventura, strong growth (16 per cent) is expected in the FMCG business CAGR 22,729 crore with margin improvement (+290 bps to 8.6 per cent). Post-pandemic shift towards sustainable packaging and Badla Yatra will help in revenue growth and profitability of both the verticals.


Cigarette business – boom in growth

ITC, the market leader in the cigarette segment in India, has a market (volume) share of over 75 per cent. The company’s in-house ability to manufacture filters and capsules will help ITC innovate its portfolio and cut costs. From FY21-24E,

Volumes are expected to grow at a CAGR of 5 per cent to Rs 7,314 crore, while EBIT is expected to grow at a CAGR of 10 per cent to Rs 18,115 crore.


FMCG Biz – The Leader of the Next Decade

In its attempt to move away from the cigarette business, ITC has managed to build a strong FMCG business. This segment is low penetration and is largely catered to by the unorganized sector, but ITC, with its plethora of brands and strong supply chain, is best positioned to take advantage of this opportunity.

During FY21-24E, the business revenue of this segment has grown at a CAGR of 16 per cent to Rs 22,729 crore, while the revenue of packaged food products is expected to grow at a CAGR of 16 per cent to Rs 18,985 crore, and others are expected to grow. 3,744 crore at a CAGR of 15%.

Hotel Business – Finally Turning the Corner

Analysts expect the Indian hotel market to reach $32 billion (in FY20) to $52 billion by FY27. ITC’s hotel business is poised to see a strong resurgence in operating performance in view of the unfavorable conditions for the sector. During FY21-24E, the hotel business revenue is expected to grow at a CAGR of 62 per cent to Rs 2,803 crore. The EBIT is expected to turn into a profit of Rs 133 crore in FY14 as compared to a loss of Rs 564 crore in FY 2011.


Investment logic:

– Strong growth potential of the industry

-Growing market share with leadership position in multiple categories

India’s consumption growth story with strong demographic profile


Outlook

With all the four cylinders on fire, we expect Revenue / EBIT / PAT to grow at a CAGR of 17.7 per cent / 17 per cent / 14.5 per cent to Rs 86,678.6 crore / Rs 24,613.5 crore / Rs 19,739.9 crore. FY21-24, said the brokerage report. However, Ventura has not developed any margin expansion model given the systemic inflationary pressures.

Foreign brokerages also remain largely positive on the stock post March quarter earnings, with their target prices suggesting a rally of at least 15 per cent over the next 12 months. J. P. Morgan Upgraded its rating on the stock to outperform with a target of Rs 305.

Credit Suisse also finds the stock worth Rs 315. This values ​​the company’s cigarette business at 18 times its March 2024 earnings estimates, in line with global tobacco connoisseurs.

Bull & bear case landscape

Analysts assume FY24E sales of Rs 91,860 crore, PAT margin of 23.8 per cent, with a marginal re-rating of 23.8X FY24E P/E, resulting in a bull case price target of Rs 423 per share. 55 percent from CMP).

However, sales of Rs 81,696 crore in FY24E, PAT margin of 21.8 per cent, with a slight de-rating of 19.8X FY24E P/E, would result in a bear case price target of Rs 287 per share (up 5.3 per cent). from cmp).

(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of The Economic Times)