 "ITC stock extends rally into 5th day, hits 5-month high; up 7% in 1 week")
Shares of ITC hit an over five-month high of Rs 454.05, up 2 per cent on the BSE in Tuesday's intraday trade, extending its past four days' upward movement on expectations of a steady growth in the company’s core businesses of cigarette and fast moving consumer goods company (FMCG).
In the past one week, ITC has outperformed the market by surging 7 per cent, as compared to 6 per cent rise in the BSE Sensex. Currently, the stock is trading at its highest level since January 29, 2024. It had hit a record high of Rs 499.60 on July 24, 2023.
ITC's cigarette business saw volume recovery in FY23 and FY24, with cigarette volume almost at par with its peak volumes in FY13. Stability in taxes and various government initiatives to curb illegal cigarettes have been supporting the legal cigarette market. Motilal Oswal Financial Services model a 6.5 per cent revenue CAGR, 3.5 per cent volume CAGR and 6.5 per cent earnings before interest tax (Ebit) growth during FY24-26 with steady macros and taxes.
FMCG continues to enjoy industry leading growth over peers due to ITC's category presence (large unorganised mix, under-penetrated, etc). Consistent margin improvement further provides confidence in growth without compromising profitability.
After the demerger of its asset-heavy hotels business, ITC's return profile will also improve. Margin improvements in the other FMCG business will further enhance return ratios and valuation multiples, the brokerage firm said in a stock report. It reiterated its 'Buy' rating on the stock with a SOTP-based target price of Rs 500 (implied 27x FY26E EPS).
"For cigarettes, analysts at Emkay Global Financial Services see gross revenue growth at ~9 per cent with ~4 per cent volume growth. Recovery of volume growth in the northern market is likely to help. Ahead of the budget, any trade stocking is likely to aid volume further. Segment Ebit margin is likely to see 155bps contraction Y-o-Y (to 72.6 per cent) on the back of inflationary raw material pressures," the brokerage firm said in Q1FY25 preview.
Other FMCG is likely to maintain high-single digit growth, and Ebitda margin is likely to expand by 50bps Y-o-Y to 11.5 per cent. Hotels remain on a firm footing with 13 per cent topline growth and margins at ~34 per cent expected, the brokerage firm said.
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Going ahead, analysts at KRChoksey Shares & Securities believe a stable tax structure will help ITC continue to gain volumes from illicit trade.
"The FMCG-Others business continues to see stable growth on the back of its continuous focus on new and innovative launches and will see further improvement as consumption sees an uptick. Premiumisation and cost optimisation will continue to aid profitability for the FMCG-Others business. The pipeline of upcoming properties in the hotel segment will assist in maintaining a robust growth trajectory," it said.
"The FMCG-Others business continues to see stable growth on the back of its continuous focus on new and innovative launches and will see further improvement as consumption sees an uptick. Premiumisation and cost optimisation will continue to aid profitability for the FMCG-Others business. The pipeline of upcoming properties in the hotel segment will assist in maintaining a robust growth trajectory," it said.
That said, the brokerage had maintained its 'cautious' stance on ITC's agri ad paper-board businesses post its March quarter results. "We will monitor the growth and margin trend going forward. However, ITC has been striving hard to maintain its margins through various cost initiatives across all the businesses," it had said.