Stocks

Laggard ITC too joins bull party

Abhishek Law Kolkata | Updated on September 17, 2021

Valuations attractive, business outlook to improve say analysts

 

Diversified conglomerate, ITC saw its share price surge by over 7 per cent during intra-day trade on Thursday as it rallied to a day’s high of ₹233.65. The stock closed at ₹230.30, up 6.62 per cent, at the NSE. ITC opened at ₹216.95 against the previous day’s close of ₹216.

Underperformer

The cigarette-to-hotel conglomerate’s scrip has remained in a range-bound trend and is up around just 8 per cent this year, underperforming peers and even the benchmark index Nifty50, which surged 25 per cent.

Analysts believe the rise was on expected lines. Most agree that there is no new fundamental development happening in the company that could have triggered today’s rally.

Attractive valuations, expected improvement in business outlook, lesser lockdown impact on the FMCG and cigarette segments, a strong portfolio of FMCG brands, and the potential of value unlocking could be driving the stock, they feel.

The Kolkata-based firm had reported a stand-alone net profit of ₹3,013 crore for the quarter ended June. Revenue from operations increased 36 per cent y-o-y to ₹12,959 crore while EBITDA grew by over 50 per cent.

CLSA in its report said, ITC’s FMCG business is “firmly on path for profitable scale up with multiple value creation opportunities.”

We expect the FMCG business to deliver a 31 per cent EBITDA CAGR over FY20-24 on the back of industry tailwinds, margin levers and improving asset utilisation,” it said.

It further said “inorganic growth (acquisitions) should offer an additional growth lever”. Falling capex, the asset-light model for its hotel business and a sharp increase in its dividend payout (102 per cent for FY21) “should address new investor concern over capital allocation,” it added.

 

Cigarette stocks

According to Abneesh Roy, Executive VP, Institutional Equities, Edelweiss Securities, the rally could also be specific to tobacco manufacturers such as Godfrey Phillips and VST Industries that gained 5-9 per cent.

“This is the first time when ITC stock has not shown nervousness before a GST meeting (due on Sept 17). With there being no increase in cigarette taxes across previous meetings, investors are getting comfort,” Roy added. According to Roy, factors like permit regulated FDI in tobacco could also play a role in the rally.

Published on September 16, 2021

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