Diversified business conglomerate ITC Ltd entered the league of top-10 companies on the BSE by market capitalisation during trading hours on Tuesday. It, however, slipped to the 12th position with a market-cap of ₹3, 61,069 crore at closing hours, as Bharti Airtel and Adani Green Energy regained coveted spot while ITC slipped in the closing hours.

The company’s scrip opened at ₹293.45 on the BSE on Tuesday and touched a high of ₹295.30, before closing at ₹292.65, down by less than one per cent (0.78 per cent). It had touched a 52-week high of ₹296.95 recently.

According to Punit Patni, Equity Research Analyst, Swastika Investmart Ltd, ITC has proved its mettle and has been one of the best performers this year rising 34 per cent compared to a negative 7 per cent return of the Nifty 50. The company’s outperformance can be attributed to its robust cash flows, virtually monopolistic cigarettes business, growing other segments like FMCG, and rising investors’ inclination towards value stocks.

ESG concerns from tobacco biz

Analysts said ITC has been underperforming due to ESG concerns because of its tobacco business. In view of its fundamentals and valuation, the underperformance is getting corrected now, they added.

“The stock has been testing investor’s patience for the last 10 years and has just managed to give around six per cent return in the last decade, the reason being rising ESG-based trends in investing, high reliance on the cigarette business for cash and profit generation, and long gestation period in the FMCG business. However, times have changed and investors have realised the importance of cash flows in current turbulent times, and we believe that even after the recent outperformance, more steam is left in the stock,” Patni said.

A recent research report by Edelweiss Securities had revised the target price to ₹340 (from ₹325) and maintained a buy on the stock.

“FY22 saw robust performances from all segments with cigarettes and FMCG growing their reach and enhancing the product portfolio. In FY23E, we expect legal cigarette players to gain market share from illegal players (almost one-fourth of the market), given no tax hike for a second consecutive year. Also, relatively, cigarettes are more affordable as most other forms of consumption have seen an inflation of 10-20 per cent. ITC’s hotels business would see strong recovery in FY23E, although the ongoing financial crisis in Sri Lanka poses a minor challenge. Regulations around wheat exports remain a key concern. Developments thereof will be keenly monitored,” it said.

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