NEW DELHI: September quarter numbers could not give ITC stock a lift as a good show in its paperboards and hotel businesses was offset by a weakness in the cigarette and agri segment numbers, leading to results that offered little positive surprise.
A majority of analysts have ‘neutral’ or ‘hold’ rating on the stock post its quarterly numbers, even as their price targets vary in Rs 225-285 range.
In Motilal Oswal’s words, continued sub-par growth in Ebit in the mainstay cigarettes business and tepid underlying cigarette volumes act as a deterrent against ITC’s rerating.
It noted that growth in non-cigarette FMCG business was just 3 per cent. Persistent cost pressures meant that operating margin was flat YoY, and is likely to be flat in the December quarter as well.
ITC’s valuation at 16 times FY23 earnings appears fair, the brokerage said while suggesting a target of Rs 240 on the stock.
On Thursday, the stock fell 3.83 per cet to Rs 229.60 on BSE.
Cigarette volumes for the quarter rose 9.5 per cent YoY but that was on a soft base of 12 per cent degrowth in the year-ago quarter. The exit volumes were at near pre-Covid levels.
The FMCG major said a shortage in availability of shipping containers, port congestion and inclement weather towards the end of the quarter delayed customer call-offs, which affected agri business performance.
Foreign brokerage JPMorgan said it is ‘neutral’ on the stock with a target of Rs 225 as it believes the performance of ‘Other FMCG’ segment was a miss. For Morgan Stanley, the numbers were marginally ahead of its estimates, even as the cigarette business top line came in weaker than what it expected. This brokerage has a target of Rs 251 on the stock.
Edelweiss said while the cigarette opportunity in India remains attractive given per capita consumption, investing modalities have changed with ESG assuming a significant role. The decision of the panel on tobacco tax and the upcoming union Budget are a key variable, it said.
“Overall, ESG-led investing is assuming significance and
is consciously striving to climb up the ESG ladder. Improved disclosure is welcome. Watch out for recommendations from a panel on tobacco tax, a key variable,” Edelweiss said while suggesting a target of Rs 265.
ICICI Securities also remained concerned over the recent media reports that suggested that the government panel formed to decide on the future taxation policy for tobacco is suggesting ways to raise tax on tobacco.
“While near-term volume and profitability trajectory will be sensitive to this outcome, we believe a rational policy (if) can provide some certainty in the medium term. Improving performance in other businesses can help overall narrative, nonetheless,” the brokerage said while suggesting a target of Rs 260.
Emkay has a target of Rs 270 on the stock as it assigned a value of Rs 12 to ITC’s IT segment. It noted that the paper business delivered a strong performance while hotels business continued to witness strong recovery trends, with easing travel restrictions leading to 3 times higher occupancy levels than the year-ago quarter. ITC Infotech continues to exhibit strong growth trends, with a 1.7 times jump in profitability in H1FY22, it said.
Nirmal Bang has a buy rating on the stock with a revised target of Rs 285 from Rs 290 earlier, valuing ITC at a multiple of 20 times on September EPS. This target at Thursday’s low suggests 24 per cent potential upside.
“In the near term, all eyes would be on the recommendation of the expert panel set up by the government to prepare a comprehensive tax policy proposal covering all tobacco products from a public health perspective,” it said.Internet Explorer Channel Network