ITC stock: JPMorgan shares target price, upside triggers for FMCG giant

JPMorgan on Friday said price hikes for cigarettes and no changes in cigarette taxation in the upcoming Union Budget would be potential upside triggers for ITC Ltd shares. At 24 times FY24 earnings per share, it finds ITC's valuations 'accommodative.'

The brokerage has a target of Rs 490 on the stock, as it values ITC's cigarettes business at 15 times EV/Ebitda, which is at a premium to the global tobacco average, to account for the higher EBIT growth prospects from the shift to
organised players and premiumization.

"We value the Other FMCG business using an EV/sales multiple of 6.5 times, which is broadly in line with other foods peers. Hotel is valued at 20 times EV/Ebitda (broadly in line with peers), Paper & Packaging at 15 times EV/Ebitda and Agri at 10 times EV/Ebitda (in line with regional peers)," JPMorgan said.

For FY25, it forecast a steady 7 per cent EBIT growth for cigarettes, continued margin expansion-led earnings growth for FMCG and recovery in revenue and margins for paper and agri businesses.

JPMorgan said ITC’s Q4FY24 revenue and Ebitda were in line with its estimates though profit after tax was a miss owing to lower-than-expected other income.

"Cigarette volume growth at 2 per cent YoY (JPMe) was in-line with expectations and better price/mix drove net sales growth of 7 per cent YoY. However, muted cigarette margins due to leaf tobacco inflation drove EBIT growth of 5 per cent YoY," it said.

JPMorgan said EBIT for Agri declined sharply even as Hotels business registered strong revenue/Ebitda backed by robust ARR.

"Growth rates over the long term could benefit from the low share of cigarettes in overall tobacco consumption, ITC’s dominant positioning, high barriers to entry, and improving profitability/returns for its non-tobacco businesses. Normalcy is setting in for the cigarette business with the markets re-opening as Covid-19 abates. ITC’s competitive position continues to strengthen across most other
FMCG categories, benefiting from augmented distribution reach, an enhanced e-commerce presence (8 per cent salience), and meaningful innovation intensity. We rate the stock OW," it said.