Emkay’s research is based on ITC’s strong growth potential, a significant shift in prospects post the COVID-19 pandemic, and the expectation of value unlocking opportunities.
Analysts at Emkay Research have initiated coverage on ITC shares with a “buy” recommendation and a target price of Rs 525 per share by June 2024. The recommendation is based on the company’s strong growth potential, a significant shift in prospects post the COVID-19 pandemic, and the expectation of value unlocking opportunities. Emkay’s target price implies a 15.7% upside from yesterday’s closing price of Rs 453.6 per share.
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The analysis values ITC’s cigarettes business at 21 times price-to-earnings ratio (PER), accounting for approximately 46% of the target price. The “Other FMCG” segment is valued at 7 times June 2025 sales estimate, representing around 27% of the target price. The report emphasises that revenue scale-up in the non-cigarettes business will lead to better margins, while lower capital expenditure requirements will enhance the returns profile of ITC’s non-cigarette operations.
The K-shaped recovery is expected to further amplify ITC’s growth trajectory. The report highlights that revenue growth across the non-cigarettes business, coupled with improved margins and potential value unlocking through demerger or alternate capital structures for its Hotels and Infotech businesses, could drive incremental upside for ITC.
The analysis notes a significant shift in ITC’s prospects compared to the challenging times experienced during the COVID-19 pandemic. The company’s cash-cow business, cigarettes, is projected to gain structurally, thanks to the government’s accommodating taxation stance for the segment. The “Other FMCG” business, which is focused on premium offerings, supports ITC’s margin expansion. Additionally, ITC’s Hotels and Paper businesses have witnessed a strong recovery, contributing to healthy margins.
ITC’s capital allocation strategy is also viewed as comforting by the analysts. With its backend operations largely in place, the company does not require substantial capital expenditure for its businesses. Incremental capex will be directed towards capacity expansion in the paper business, building backend infrastructure in the FMCG segment, and technological upgrades. The analysts consider ITC’s ahead-of-time capacity build-up as a competitive edge, providing a long growth runway for the company.
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The report highlights that ITC has a policy of dividend pay-out of 80-85%, reflecting its self-sufficiency in funding its own growth. Over the last two decades, approximately 74% of the operating cash flow has been returned to shareholders as dividends.
The analysis notes a significant shift in ITC’s prospects compared to the challenging times experienced during the COVID-19 pandemic. The company’s cash-cow business, cigarettes, is projected to gain structurally, thanks to the government’s accommodating taxation stance for the segment. The “Other FMCG” business, which is focused on premium offerings, supports ITC’s margin expansion. Additionally, ITC’s Hotels and Paper businesses have witnessed a strong recovery, contributing to healthy margins.
ITC’s capital allocation strategy is also viewed as comforting by the analysts. With its backend operations largely in place, the company does not require substantial capital expenditure for its businesses. Incremental capex will be directed towards capacity expansion in the paper business, building backend infrastructure in the FMCG segment, and technological upgrades. The analysts consider ITC’s ahead-of-time capacity build-up as a competitive edge, providing a long growth runway for the company.
The report highlights that ITC has a policy of dividend pay-out of 80-85%, reflecting its self-sufficiency in funding its own growth. Over the last two decades, approximately 74% of the operating cash flow has been returned to shareholders as dividends.
