Analysts on D-Street have turned bullish on the stock and believe it is ripe for further rally.
Latest to join the bandwagon in domestic brokerage
Service. The brokerage, in its latest report, upgraded the rating on the stock to ‘Buy’ with a target price of Rs 335, signalling a potential upside of over 27 per cent in the counter, from its previous close of Rs 263.50.
The brokerage house said a better-than-expected demand recovery, healthy margin outlook in cigarettes, strong sales momentum in the FMCG business, lower drag from the hotels business, and better capital allocation in recent years will turn constructive for the stock.
It further added that the stable tax environment for cigarettes in recent years has allowed ITC to calibrate price increases to avoid a disruption in demand and this trend is likely to continue and should result in improved cigarette volumes and earnings visibility over the medium-term.
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Talking about valuations, said ITC still trades at a 27 per cent discount to its January 2019 valuations of 25.4x one-year forward EPS. It believes the premium multiples are justified, given its strong visibility over the medium-term and the defensive nature of its business, especially in a volatile macro environment.
Also, it said ITC’s payout policy of 80-85 per cent of profit was reiterated by the management at its recent analyst meeting in December 2021 and lower capex requirements should result in better free cash flow and higher payouts.
ITC’s higher dividend yield (4-5 per cent) makes it an ideal defensive bet in the current volatile interest rate environment, the brokerage house added.
The recent rally in the share prices has been accompanied by an increase in exposure by foreign portfolio investors (FPIs) after four quarters of selling. Data showed that FPI ownership in ITC, which stood at 13.31 per cent in December 2020 jumped to 11.9 per cent in the March quarter.
Recently, analysts at
Securities also initiated coverage on ITC with a ‘Buy’ rating for a target price of Rs 350. ITC is one of the few stocks that provide a strong growth opportunity with an attractive dividend yield of 4.19 per cent, it said.
The FMCG giant reported an 11.80 per cent year-on-year (YoY) rise in standalone net profit at Rs 4,190.96 crore for the March quarter on a 16.02 per cent YoY rise in revenues at Rs 16,426 crore.
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