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Target: ₹535
CMP: ₹455.60
ITC’s stock has doubled since its last analyst meet in Dec 2021. We expect its outperformance in our consumer coverage to continue. Management highlighted that stable taxation on cigarettes has positively impacted the tax revenue of government and the legal cigarette industry’s volumes.
Though its earnings trajectory has been similar to that of HUL and Nestle in the past two decades, the still elevated gap in valuations and dividend yields make ITC our preferred FMCG pick.
Also read: Broker’s call: Senco Gold (Buy)
ITC’s FMCG division has grown ahead of the industry, led by its innovation and distribution initiatives. It launched 300 products in the past three years. ITC has managed to expand its EBITDA margin by 80-100 bps p.a. in the recent years and expects the trajectory to continue, led by improvement in mix, larger scale and costly initiatives.
ITC’s long-term comments on the cigarette division were positive, but it hinted at a potential near-term consolidation after strong volume growth in FY23
The company offers the highest dividend yield in our FMCG coverage. Its growth outlook has improved in the years since the implementation of GST due to a stable taxation regime. We think its valuation looks attractive in an expensive Indian consumer stock universe.
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