Three top brokerage firms – CLSA, Credit Suisse, and Axis Capital – have assigned “Buy” or “Outperform” rating to the ITC stock.
Credit Suisse increased the target price to Rs 265 from Rs 255 on roll forward while maintaining an outperform rating.
Comparable FMCG growth in Q3 was 11 percent year-on-year, which remains very healthy. “We remain positive on ITC as we see strong cigarette recovery as consumer mobility recovers…and increasing value of FMCG business with strong EBIDTA performance,” the brokerage said.
Standalone FMCG EBITDA margin was 9.2 percent, thus making these two consecutive quarters of EBITDA margins over 9 percent. Consolidated EBITDA margins including the acquired business of Sunrise Foods was 10 percent in 3Q FY21. “With this, ITC’s FMCG EBITDA margins are now within what are considered acceptable margins, even though we see the potential for further improvement over the next few years driven by operating leverage,” it added.
CLSA raised the target price from Rs 255 to Rs 275. Other FMCG performance in line. “As set eases, we see recovery in both cigarette and other FMCG YoY. We see near-term business pressure as largely reflecting a restricted setting, with normalcy it should recover,” it said.
“Cognisance of the fact that the legal cigarette industry needs to recover volume lost during the pandemic, unchanged taxation is likely to help ITC’s recover cigarette volume. In line with our expectations, ITC has proven its leadership by gaining share and arresting volume declines. With unchanged taxation for FY22, we expect volume growth of 14 percent YoY. We now build in low double-digit tax for FY23,” the brokerage added.
Axis Capital revised the SoTP based TP to Rs 260 (from Rs 250). “Multiple rerating triggers at play – low base, benign taxation, a structural uptick in FMCG biz, modest valuation, 5 percent dividend/FCF yield. BUY stays,” it added.
Cigarette/FMCG broadly in Line/Hotels operational recovery promising. Recovery on track. The FMCG business posted another robust quarter with 11 percent Y-o-Y underlying revenue growth and 93 percent EBIT growth to Rs 2.07 billion aided by 260 bps Y-o-Y rise in the margin to 5.8 percent,” it added.
