ITC's December quarter results impressed Dalal Street. What analysts liked the most was an 18 per cent growth in cigarettes business, aided by strong volume recovery. A strong Hotels segment performance and margin improvement in non-cigarette FMCG business also impressed analysts. A key concern, however, was high raw material inflation, as it adversely affects margins.
ITC valuations, despite recent rally, looks attractive, analysts said. Post December quarter results, analysts have price targets as high as R 475 on the stock, suggesting a potential 25 per cent upside on the counter.
Sharekhan said ITC reported strong performance, ahead of Street expectation, on account of better-than-expected volume growth in the core cigarette business, strong margin improvement in the non-cigarette FMCG business, and a stellar performance by the hotel business.
"Despite strong run-up in ITC’s stock price in recent times, valuations at 25 times FY23, 23 times FY24 and 20 times FY25 earnings per share looks attractive in the backdrop strong earnings growth visibility. We maintain our Buy rating with revised target of Rs 450," it said.
The stock rose 0.9 per cent to hit a high of Rs 383.80 on BSE.
ITC reported a 21 per cent jump in net profit at Rs 5,031 crore for the December quarter compared with Rs 4,156 crore in the year-ago period. The company declared an interim dividend of Rs 6 per share.
Revenue for the quarter rose 2.3 per cent to Rs 16,225 crore from Rs 15,862 crore in the year-ago quarter.
Phillip Capital said ITC is better placed against competition at least for next few quarters as more than 80 per cent of the company’s profits are largely protected against FMCG peers, who are grappling with twin issues of lower volume growth and hyperinflation in rawe material cost.
"Notably, cigarette industry volumes recovering to pre-covid levels and ITC re-gaining lost market share from its organized peers acts as icing on the cake," it said while suggesting a target of Rs 475 on the stock.
Jefferies, Goldman Sachs, Motilal Oswal Securities and Nuvama Institutional Equities have Rs 450 as price targets for the stock. JPMorgan sees the stock at Rs 425 while Morgan Stanley sees it worth Rs 415.
"We expect the strong business growth momentum to continue across divisions. In
cigarettes, we believe a pragmatic tax regime not only acts as a fodder for volume growth from illicit but also increases its predictability premium. We expect FMCG, hotels, paperboard to continue to witness improvement in business and margins supported by new launches, reach expansion. We increase FY23-25 EPS esimates by +2-3 per cent to factor in the December quarter beat," said Nomura India. This brokerage has a target of Rs 455 on the stock.
Phillip Capital noted that domestic institutional investor under-ownership against ITC's its weight in Nifty (3.03 per cent) should provide sufficient room for stock price to appreciate in the medium term. The brokerage has upgraded its target multiple for the stock to 24 times from 22 times, assigning a 10 per cent premium to its 10-year average given clear visibility on profitability front and volume for next 12 months.
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