ITC has 78 per cent market share in cigarette market and has presence in staples, biscuits, noodles, snacks, chocolate, dairy and personal care products. The company is also present in the paperboard, printing & packaging business with revenue of Rs 4,549 crore and agri business with Rs 8,001 crore (as of FY21). Its hotel business is also seeing recovery following the unlocking of the economy and pick-up in travel.
In April-June quarter, ITC's cigarettes volumes were impacted by the second wave (down 21 per cent on two-year basis). However, week‐on‐week improvement was seen since mid-June with most markets returning to normalcy and witnessing faster recovery compared with the first wave. "The FMCG business showed robust performance with 10.4 per cent growth in revenue... While the cigarette opportunity in India remains attractive given per capita consumption, investing modalities have changed with ESG assuming a significant rolefirst wave," analysts at Edelweiss Securities had said in a result update.
Those at ICICI Securities, meanwhile, believe ITC's cigarettes business will fully recover with the aggressive vaccination drive and reduction in Covid-19 cases. "We also believe elevated commodity prices would cool off in the next two to three quarters with considerable margin improvement in the FMCG business set to continue. However, investor perception of cigarette business and its long term prospects has been one of the biggest drags for the stock price performance in the last five years," the brokerage firm said in the June quarter result update.
ITC has big aspirations for FMCG business, which has clocked average sales growth of 9 per cent in the past four years, and analysts expect growth rate to improve to 13-14 per cent during FY21-FY24.
According to a Jefferies report, dated September 20, ITC is set to witness recovery in its cigarette volumes and earnings in the coming quarters.
The brokerage has an "outperform" rating on the stock and has revised its target upwards to Rs 300 from Rs 275.
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