Target: ₹424

CMP: ₹345.10 

ITC’s recent price outperformance (+25 per cent) has kept investors gasping, however, we see potential for ITC to inch-up to new records soon, given: likely potential for price hikes in cigarettes pre-empting next Union budget; strong underlying performance with improved profitability in the Foods portfolio; improving outlook and potential demerger for the Hotel business; and bridging valuation gap. Besides this we note continued focus on augmenting distribution could scale up FMCG business and expand market share including cigarettes.

The company’s FMCG-foods scale-up has all ingredients to drive a long-term trajectory. FMCG-Foods now covers about seven million outlets and its direct coverage increased 40 per cent year on year. Moreover, we expect ITC to execute selective price hikes in cigarettes.

Further, with improving operating metrics and bounce back in Hotels business, we expect improved occupancy with +20 per cent ARR resulting in profitable demerger soon. Paper business demand is likely to be fuelled by end-user segments, though input prices could remain inflationary resulting in strong performance in FY23. ITC-MAARS initiative could drive agri business and promote ‘Climate-Smart-Agriculture’ focusing on value-add portfolio and select export opportunities.