ITC at Rs 400? Analysts upped price targets post strong Q2 earnings

Shares of ITC climbed over 1 per cent in Friday's trade following the FMCG maker's strong show in the September quarter. Price targets by a few brokerages go as high as Rs 405, suggesting a potential up to 14 per cent upside for the third best Nifty50 performer of 2022.

Analysts said a strong growth in cigarettes business was aided by strong volume recovery. Besides, growth in staples and convenience foods such as biscuits, atta, noodles and discretionary categories, were solid.

"ITC continues to shine across segments," said Nuvama Institutional Equities which has revised its price target on the stock to Rs 400 from Rs 357 earlier.

On Friday, the scrip rose 1.22 per cent to hit a high of Rs 354 on BSE. With 61 per cent return, ITC is the third biggest Nifty performer in 2022 so far. 

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For Kotak Institutional Equities, September was a well-rounded quarter with cigarette revenue growth of 23.3 per cent YoY, led by about 20-21 per cent volume growth.

It noted FMCG business growth of 21 per cent  YoY and a flat EBIT margin YoY (6.6 per cent) despite inflationary headwinds.  A decadal-high paperboards EBIT margin, and consecutive Rs 500 crore-plus top line quarter for hotels made Kotak upgrade FY2023-24 EPS estimates by 5-6 per cent, as Kotak revised its fair value for the stock to Rs 380 from Rs 337 earlier.

ITC reported a 24.08 per cent jump in consolidated net profit at Rs 4,670.32 crore for September quarter. It reported a 25.35 per cent YoY surge in sales at Rs 18,608 crore for the same period.

High raw material inflation, however,  was a concern and so was the rupee depreciation. Agri-business saw 47 per cent fall in growth sequentially while hygiene portfolio remained subdued, analysts noted.

Motilal Oswal said valuations of global tobacco peers have been restored to their pre-pandemic levels, and while ITC’s multiples have followed the same trend, it still trades at a 10 per cent discount to its January 2019 valuations of 25.4 times one-year forward EPS.

"We assign a 22 times EPS multiple and roll forward to Sep’24E earnings. The stock has done well with 33 per cent gain since our upgrade to Buy call in June and we believe there is further scope for upside based on its healthy earnings outlook," it said. This brokerage has a price target of Rs 400 on the stock.

ICICIdirect has raised its cigarette FY23 volumes growth estimate for ITC to 13 per cent from 10 per cent . It has also incorporate higher hotel occupancies and ARRs after factoring in strong H1FY23 performance and future outlook. ICICIdirect values the stock at Rs 405.

"Consistent revenue acceleration across business segments coupled with healthy margin delivery over the past several quarters is quite impressive. We are particularly enthused with cigarette volume acceleration (both YoY and 3-year CAGR) which is indicative of ITC’s execution prowess," said Axis Capital.  This brokerage has raised its target on ITC to Rs 375 from  Rs 335 earlier.