ITC share price has surged nearly 9% after the Budget 2023 to Rs 383 now, and brokerages are bullish with up to 18-20% further upside on the stock, given the consistent stability in the taxes and demand environment, clubbed with solid cigarette volume growth and a steady CAGR of 13.5% in the FMCG industry. Cigarette volumes are rising, and will likely continue to rise; cigarette margins will likely remain healthy; there’s a build-up of momentum in FMCG business, and a steady growth in the agribusiness, analysts said in various notes after ITC’s fiscal third-quarter results. ITC, India’s biggest cigarette maker, reported robust cigarette volume growth of ~15% for the quarter ending December 31, 2022 (Q3FY23) period, with the company’s net profit rising 21% on-year.
ITC Stock Call: Buy, Hold, or Sell? What brokerages say
ICICI Direct: Buy
Target Price: Rs 450
ICICI Direct raised their cigarette volumes growth estimate from 13% to 17% for FY23E considering market share gains from illicit cigarettes and solid growth in RS 10/stick price point. “Given that tax increase in budget 2023 is insignificant, ITC would continue to witness strong volume growth in cigarette business in the future. Further, we expect a 5% cigarette volume growth in FY24. We maintain our BUY recommendation with a revised target price of Rs 450/share, which was earlier Rs 405 /share.”
AXIS Securities: Buy
Target Price: Rs 460
According to the brokerage, the stock is currently trading at 19x FY25E EPS and a 3-4% dividend yield provides a huge margin of safety compared to its peers. With a stable outlook for the cigarette volume growth, the FMCG business reaching the inflection point (as its EBIT margins are expected to inch up from 7.7% in FY22), a strong and stable growth witnessed in hotels, and steady and decent performance outlook in paperboard and agribusiness, ITC makes a better play in the entire FMCG pack. “We estimate the company to post Revenue/EBITDA/PAT growth of 13%/17%/16% CAGR over FY22-25E and maintain a BUY rating on the stock with revised TP of Rs 460/share (against the CMP of Rs 380/share). We value the company at 24x FY25 EPS. The TP implies an upside of 21% from the CMP.”
HDFC Securities: Buy
Target Price: Rs 385
Analysts at HDFC Securities model an 8% revenue CAGR during FY23-25 for ITC. “The underlying core remains strong. It saw rapid growth in e-commerce, quick commerce, MT and institutional channels. Rapid new launches, distribution revamp, and efficiency on supply chair remains the core metric. Hotel/paper clocked 50/13% YoY growth while agribusiness was down by 37%. Hotel business’ ARRs and occupancies are above pre-COVID levels, driven by growth from leisure, weddings, and MICE.”
Motilal Oswal: Buy
Target Price: Rs 450
“There is no change in our FY23 EPS but we have raised our FY24 EPS by 3.5% due to a better outlook after no material GST/calamities duty increase in the budget. We are positive on ITC given 1) a better-than-expected demand recovery and a healthy margin outlook in Cigarettes, 2) healthy sales momentum in the FMCG business, 3) a smart recovery in the hotels business, and 4) better capital allocation in recent years.”Analysts added that ITC’s earnings visibility is better than peers’ in an uncertain operating environment for consumer companies.
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