Analysts at D-Street have turned bullish on the stock and believe it is poised for further upside.
Domestic brokerages latest to join the bandwagon
service. The brokerage, in its latest report, upgraded the rating on the stock to ‘Buy’ with a target price of Rs 335, indicating a possible rise of over 27 per cent in the counter, from the previous close of Rs 263.50.
The brokerage house said better-than-expected demand recovery, strong margin outlook in cigarettes, strong selling momentum in FMCG business, less pullback from hotel business and better capital allocation in recent years will turn constructive for the stock.
It further said that the stable tax environment for cigarettes in recent years has allowed ITC to check price hikes to avoid demand disruption and this trend is likely to continue and consequently in the medium term. Cigarette volume and income visibility should improve.
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Talking about valuations, ITC said that ITC is still trading at a discount of 27 per cent on its January 2019 valuation of 25.4x one-year forward EPS. It believes the premium multiples are justified, given its strong visibility over the medium term and the defensive nature of its business, especially in a volatile macro environment.
Further, it said ITC’s payout policy of 80-85 per cent profit was reiterated by the management in its recent analyst meeting in December 2021 and lower capex requirements should result in better free cash flow and higher payouts.
The brokerage house said ITC’s high dividend yield (4-5 per cent) makes it an ideal defensive bet in the current volatile interest rate environment.
The recent rally in share prices coupled with increased exposure by foreign portfolio investors (FPIs) after four quarters of sell-offs. The data showed that FPI ownership in ITC, which stood at 13.31 per cent in December 2020, increased to 11.9 per cent in the March quarter.
The securities commenced coverage on ITC with a ‘Buy’ rating for a target price of Rs 350. ITC is one of the few stocks that offer a strong growth opportunity with an attractive dividend yield of 4.19 per cent, it said.
The FMCG giant reported a year-on-year growth of 11.80 per cent in standalone net profit at Rs 4,190.96 crore for the March quarter, registering a growth of 16.02 per cent on revenue of Rs 16,426 crore.
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