HDFC Securities has rated ITC Ltd’s shares as ‘buy’ with sequential targets of Rs 300 and Rs 322 over the next three-four quarters, citing strong growth potential while attributing the recent losses in the stock to overreaction in the markets. ITC Ltd stock is HDFC Securities’ pick of the week. The shares of ITC have gained 8.5% since January. Notably, ITC shares ended at Rs 262.40 on Monday, down 2.18%. Its 52-week high was Rs 353.2.
HDFC Securities says the number four company in terms of market capitalisation in India has suffered at the hands of regulatory changes — a reference to an increase in the tax incidence for cigarettes under the GST regime. The stock of the company suffered as cigarettes are the major source of revenue. Despite the losses, HDFC Securities says, the company has good growth potential as the losses were due to overreaction in the market.
The other segments of the company, specifically the foods division under FMCG segment, the agribusiness and the hotels business have good growth potential and may drive up the profitability due to the efforts taken by the company, HDFC Securities said in a report. “With major capex in the hotels, foods business, reviving demand in the consumer segment, newer products in the agri-business, and long-term positive view on the cigarettes consumption in India, we expect the company to drive up its profitability and get re-rated,” HDFC Securities said in its report.
The research and brokerage firm advices investors to buy the stock at the current market price and add on dips to Rs 247-251 band.
The share price of the ITC was on a rising spree from January until July, but fell sharply after the clarification on the GST cess on cigarettes. The GST council had fixed 28% as the top rate for cigarettes in May but later in July levied a 5% ad valorem cess and Rs 1,591 per thousand sticks as fixed cess on both filter and non-filter cigarettes of not exceeding 65 mm length.
ITC is one of the companies in which government’s Specified Undertaking of Unit Trust of India (SUUTI) holds equity stakes. Government sold 2% stake in the tobacco major in a block deal for reportedly 6,700 crore in June.