ITC’s maiden investor meet: Key takeaways and what analysts are saying

Diversified conglomerate ITC Ltd, which makes cigarettes and operates FMCG, hotels, packaging and agribusinesses, remained the most active stock for the second day running on Wednesday.

On Wednesday, more than 23 million ITC shares changed hands by 1pm with some large deals taking place on the counter. More than 40 million shares had exchanged hands on the BSE and NSE combined on Tuesday, more than twice the average daily volume for the last one month.

The volume burst has its roots in detailed management commentary on business outlook and structuring, followed by its maiden analyst meet. The Kolkata-based company told analysts it was exploring growth triggers in all its business verticals and will focus on premiumization, which has yielded great benefits to it.

The company, which has largely relied on organic growth strategy, will shift its focus on inorganic growth strategies and explore mergers and acquisitions as a “significant vector of growth” moving forward, Chairman Sanjiv Puri said.

Puri explained the bulk of what the company has built in the FMCG segment has been done organically. The company’s top line in the non-cigarette business has gone up 20 times over the last two decades. However, the bottom line has lagged at 18 times, essentially because a large component of the growth comes from the newer FMCG businesses which are being built.

Various domestic brokerages were left searching for key triggers and specifics, but maintained their positive outlook on the stock price with a target price upside ranging 15-35%.

Analyst commentary on ITC

Swiss investment banking firm UBS said that ITC’s cigarette volume is likely to grow and the FMCG business is expected to show signs of improvement.

“For hotels, demerger is an ongoing discussion but more likely once India normalizes amid uncertainty around the new COVID variant,” the firm said, adding it has a ‘buy’ rating on the stock with a target price of Rs 280.

ITC shares were quoting at Rs 223.75 apiece on the BSE, down 2% from the previous close, on Wednesday.

American investment bank JP Morgan remains neutral on the stock with a target price of Rs 238, valuing the stock at 17 times its fiscal 2022-23 price-to-earnings (P/E) estimates on a consolidated basis, and 13 times its one-year forward earnings excluding the FMCG business.

“We sense some aggression from the management on the FMCG business...We believe that the upcoming budget session will be keenly watched from ITC’s point of view,” the firm said in a note to clients.

Hong Kong-headquartered CLSA retained its ‘buy’ rating with a target price of Rs 275 while American investment bank Morgan Stanley is staying ‘overweight’ on the stock with a target of Rs 251. Jefferies also retained its ‘buy’ rating with a target price of Rs 300 apiece.

“The management also highlighted that it is now open for an alternate structure in its hotels, and infotech business. FMCG value unlocking remains a focus and the company is looking to leverage its power brand and drive margin expansion. As for the cigarette and tobacco segment, a stable tax regime is positive for the sector,” CLSA said.