ITC regains Rs 4-trillion m-cap after 5 years; stock surges 50% in 6 months

ITC, the biggest cigarette maker, and the second largest fast moving consumer goods (FMCG) company in India, regained the market capitalisation (market cap) of Rs 4 trillion on Friday as rally in the stock continued on the bourses.

Shares of ITC hit an over five-year high of Rs 323.40 as they gained 2 per cent on BSE in the intra-day trade today, amid expectation of strong earnings growth. In the past six months, the stock has zoomed 50 per cent, as compared to 6 per cent rise in the S&P BSE Sensex. Thus far in the calendar year 2022, ITC has rallied 47 per cent, as against 0.54 per cent decline in the benchmark index.

At 02:17 pm, ITC's market cap stood at Rs 4.01 trillion, BSE data showed. The stock was up 1.8 per cent at Rs 323.15, as against 0.49 per cent rise in the Sensex. The counter saw huge activities with average trading volumes more-than-doubling as compared to its past 10-days volumes. A combined 21.23 million equity shares had changed hands on the NSE and BSE till the time of writing of this report.

ITC's market cap had last touched the Rs 4-trillion feat on July 14, 2017, when it was Rs 4.10 trillion on closing level basis. On July 3, 2017, ITC had reported a record high market cap of Rs 4.16 trillion. The stock had hit an all-time high of Rs 353 on the same day.

ITC is a leading cigarette manufacturer in India, with a more than 75 per cent volume share, enjoying significant competitive advantages.

In the first quarter (April-June) of the current financial year 2022-23 (Q1FY23), ITC posted encouraging performance with around 26 per cent cigarette volume growth and margin expansion across cigarettes, paperboard and hotels business. The company witnessed strong growth across segments on low base, strong agri exports & higher paperboard prices.

According to analysts at Prabhudas Lilladher, near-term outlook for ITC remains positive given positive cigarette volume traction in a stable tax regime, strong pricing and benefits of back ward integration in paper board in near term, sequentially improving ARR and occupancy levels in Hotels and sustained growth across segments in FMCG with margin expansion likely from Q3FY23.

Although the brokerage firm expects another quarter of margin pressure in FMCG, strong traction in other businesses will enable ITC to sustain double digit profit growth, the brokerage firm said.

"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," said analyst at JPMorgan in its Q1FY23 result update.

Normalcy is setting in for the cigarette business with the markets re-opening as Covid-19 abates, along with a stable pricing environment (in the absence of tax hikes). ITC’s competitive position continues to strengthen across most other FMCG categories, benefiting from augmented distribution reach, enhanced E-commerce presence (~7 per cent salience), and meaningful innovation intensity, the brokerage firm said with a 12-month price target of Rs 350.