ITC‘s June quarter results were healthy but lacked excitement. While key segments performed really well, agri and paperboards segments came in with subdued prints. Besides, even as cigarette volume growth at 8 per cent beat analyst estimates, the overall momentum was soft when compared with recent strong quarters. The stock could take a breather in the short term after the recent rally, analysts said, as they suggested targets for the stock in the Rs 450-560 range. The target prices suggests flattish to 22 per cent potential return going ahead.
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ITC’s core business performance remains healthy, outperforming other FMCG peers, said HDFC Institutional Equities. But the recent stock run-up limits further rerating potential, the brokerage said while suggesting a target of Rs 450.
On Wednesday, the stock was trading 1.47 per cent higher at Rs 455.55 on BSE.
The stock could take a breather in the near-term, said JM Financial. This brokerage however sees a potential re-rating on the cards, given a sharper capital-allocation strategy. ITC’s Q1 earnings did not carry the same kind of excitement that was visible in the past few quarterly results, this brokerage said.
“The FMCG segment, however, continued to perform extremely well- growth was sector-leading with strong-enough margin improvement to help EBIT in the segment to more than double. Cigarettes did just about fine and the business is moving in the right direction but steady-state volume momentum has waned a tad, as per our workings. Hotels, Paperboards were other areas of disappointment,” it said while suggesting a target of Rs 555 on the stock.
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Prabhudas Lilladher said ITC Hotels demerger is likely to be completed over next 15 months and will improve ROCE and cash flows. It finds ITC worth Rs 478. Axis Securities values it at Rs 540. It said growth in cigarette volume was stable, FMCG business reached the inflection point and that the demerger of Hotel’s business will strengthen ITC’s balance sheet and improve return ratios.
Reasonable valuation provides a margin of safety, it added.
Antique Stock Broking, which has a target of Rs 500 on the stock, said ITC’s operational performance was strong on the back of 13 per cent growth in cigarettes and 16 per cent growth in FMCG business.
“Hotels demerger is expected to be complete in 15 months and ITC shareholders would get one share of
Hotels for every 10 shares of ITC. We remain positive on ITC on sustained momentum in cigarettes, improving the performance of FMCG, and other businesses. We maintain BUY recommendation,” Antique said.
Motilal Oswal finds the stock worth Rs 535. It said ITC has demonstrated healthy 23.5 per cent EPS growth in FY23 and that it expects an EPS CAGR of 14 per cent over the next two years.
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“At a time when uncertainty looms over the industry, ITC’s recovery in Cigarette volumes offer decent earnings visibility at reasonable valuations and attractive dividend yield. We maintain our BUY rating with a target of Rs 535, based on 28 times FY25E EPS,” it said.
