ITC gains 1% after Motilal upgrade; stock up 23% so far in 2022



Shares of ITC rose 1.4% to 267.10 rupees on BSE in Thursday’s trade after national brokerage firm Motilal Oswal Financial Services (MOSL) raised its rating on the stock with “Buy” and a target price of 335 rupees per share. The stock of the diversified fast-moving consumer goods (FMCG) company had hit a 52-week high of Rs 282 on May 20, 2022. It hit a record high of Rs 353 on July 3, 2017.

So far in calendar year 2022 (CY22), ITC has outperformed the market after underperforming for the past three consecutive calendar years. In CY21, the ITC gained 4% against a 22% rise in the S&P BSE Sensex. In CY19 and CY20, the stock was down 16% and 12%, respectively, against a 14% and 16% rise in the benchmark, respectively.

So far in CY22, ITC has outperformed the market jumping 23%, compared to a 9% drop in the S&P BSE Sensex. In addition, the title has gained 28% in one year, against a 1% rise in the benchmark index.

The push comes after the company reported strong results over the past two quarters. For the January to March quarter (Q4FY22), ITC delivered resilient performance with cigarette volume growth of around 9% and margin expansion in the cigarette, paperboard and consumer products businesses.

The cigarette sector has seen a broad recovery, with volumes exceeding pre-pandemic levels. The Non-Cigarette Fast Moving Consumer Goods (FMCG) business also performed well, thanks to targeted cost management interventions across the value chain, premiumization and price-wise.

A better than expected demand recovery and healthy margin outlook for cigarettes, healthy sales momentum in the FMCG sector, less drag in the hotel business and better capital allocation in recent years lead to getting constructive on the stock, MOSL said in a company update. .

A stable tax environment for cigarettes in recent years has allowed ITC to calibrate price increases to avoid demand disruption. We expect this trend to continue and should result in improved cigarette volumes and earnings visibility over the medium term, the brokerage said.

The brokerage further stated that the breadth of ITC’s FMCG product portfolio gives it an advantage in a rapidly changing demand environment. Its leading position in some categories gives it pricing power to offset additional input cost pressures in other categories, where pricing power is not as strong.

While valuations of global tobacco peers have been restored to pre-pandemic levels (January 2019), ITC is still trading at a 27% discount to its January 2019 valuations of 25.4x one-year forward EPS . The brokerage values ​​ITC at 21x FY24E EPS, representing a 65% premium to the global average of its peers. “We believe the premium multiples are warranted, given its strong medium-term visibility and the defensive nature of its business, particularly in a volatile macro environment,” the report added.

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