ITC has once again attracted investors' attention, rising sharply in March till date, surprising a number of its cynics. The stock outperformed benchmarks during the month after a muted performance in the last one year. Just in March, the stock is up over 16 percent as against a one percent rise in Nifty FMCG and a 2.5 percent gain in Nifty50.
However, in the last 1 year, the stock rose just 10 percent in line with poor performance from the FMCG clan even as benchmark Nifty rose 17 percent, the Nifty FMCG index was up only 4 percent in this period.
Now that the stock is gaining some steam, brokerage house Edelweiss sees the conglomerate surging another 80 percent in the next 1 year. It has a 12-month target price of ₹450 for the stock, which indicates an 80 percent upside from its current market price of ₹250.
The blue-chip firm breached ₹250-level for the first time on March 22 since October 19, 2021. Before that, the last time the stock was around ₹250 was in 2019. In the 1 month, 19 market sessions, the has ended in the red in just 5 instances.
ITC of the largest consumer companies in India, with businesses spanning categories such as cigarettes, hotels, paper and agri-commodities. ITC also has a successful branded foods segment and is expanding its personal product portfolio (soaps, shampoos, deodorants, talc).
As per the brokerage, the firm's foods division is performing well and gaining a strong market share across many categories. Although the cigarette division is the major source of revenue, its other businesses such as FMCG, agri-commodities, paper and hotels have also advanced over the years, noted Edelweiss.
It expects the volume in cigarettes to revive at a CAGR of 5 percent during FY22–24E as against a CAGR of -1 percent during FY11–21. ITC's FMCG business' EBITDA margin is also likely to scale up to higher single digits while the hotel, paperboard and agri-commodities businesses will revive leading to an earnings CAGR of 12 percent in FY22–24E against a mere 7 percent in the last five years, forecasted the brokerage.
Edelweiss also expects the firm to change its investment philosophy and move away from Environmental, Social, and Governance (ESG) which will lead to multiple re-ratings in the future.
"ITC is among the ESG negative companies that have seen significant multiple deratings despite strong cash flow, scaling up of the FMCG business, rationalisation in the retail business and revival of the hotels/paperboard businesses," it said.
Considering how commodity prices moved up in the last two years, the ESG investing philosophy and its long-term benefits are uncertain, noted the broekrage.
For the December quarter (Q3FY22), ITC reported strong all-around performance on the back of robust recovery across segments. Its net profit rose 15 percent to ₹4,056 crore for the quarter under review versus ₹3,526 crore in the corresponding quarter last year.
The firm's consolidated revenue from operations also jumped 30 percent to ₹18,365.8 crore in Q3FY22 from ₹14,124.48 crore in the year-ago quarter.
The company's cigarettes business, which was one of the worst impacted businesses due to Covid-19 disruptions, reported a growth of 14 percent YoY in Q3. Meanwhile, its hotel business witnessed a 99 percent rise YoY as travel restrictions eased and leisure travel gained pace. Its paperboard business also reported record volumes and robust performance aided by demand revival and higher realisations.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.