ITC Ltd. shares increased more than 1% to ₹348 a share on the BSE on Thursday, reaching a 5-year high despite a sluggish market that saw the Sensex drop by over 500 points. ITC shares have gained traction in recent sessions and have surged 10% in the past month, outpacing the benchmark Sensex’s 0.2% gain.
“ITC’s recent price outperformance has left investors breathless, but as argued in its report, we see potential for it to inch-up to new records soon, given likely potential for cigarette price hikes preventing the release of the upcoming Union budget, strong underlying performance with improved profitability in the Foods portfolio, improving outlook and potential demerger for the Hotel business, and closing the valuation gap. Additionally, increasing distribution might help FMCG businesses build up and gain market share, including smokes, according to brokerage Centrum Broking.
While maintaining a Buy rating and raising the target price on the ITC, a FMCG company to ₹424 per share (from ₹351 before), it anticipates additional upside for ITC shares. The counter has increased by more than 57% so far this year.
“We anticipate that the cigarette segment will achieve double-digit EBIT growth in FY23 thanks to a favourable tax framework and targeted pricing hikes. While success for hotels, agriculture, and paper is driven by higher economic activity, the scale-up of the FMCG Foods industry, driven by distribution growth, should boost the margin trajectory. We anticipate ITC to do better than its competitors given its updated strategy and the improved macro and micro environments. We have boosted FY23E/FY24E profits by 6.0%/6.3% in light of outstanding performance, the note said.
However, according to Centrum, significant increases in taxes of any kind, increased leaf tobacco costs, and a slower economic recovery might all be major dangers.
In response to strong results across its business verticals, ITC recorded a 38% increase in its consolidated net profit for the April-June quarter, coming in at ₹4,169 crore. In the corresponding quarter a year before, the business reported a net profit of ₹3,013 crore. Revenue increased by more than 41% from ₹12,959 crore to ₹18,320 crore.