ITC share price up 42% this year so far; Emkay sees further upside; here’s why
ITC shares have outperformed the Sensex benchmark, rising 61 per cent in the past year. Brokerage firm Emkay Global Financial Services believes the stock could rise even further. The firm cites the potential value-unlocking in ITC's hotel business as a near-term catalyst.
ITC shares price has outperformed the equity benchmark Sensex strongly in the last one year yet the stock may have some steam left as the company's structural prospects remain healthy. The stock has surged about 61 per cent in the last one year against a 22 per cent gain in the benchmark Sensex.
Shares of ITC have been on a roll since last year. It gained 52 per cent in the year 2022 while Sensex rose marginally by 4 per cent. In 2023 so far, they have gained 42 per cent while the Sensex is up just 9 per cent. ITC stock can rise even more.
Brokerage firm Emkay Global Financial Services believes the stock can hit the ₹525 per share mark, an upside of about 11 per cent from the stock's closing of ₹472.10 on Monday on BSE.
"We maintain our 'buy' recommendation on ITC with the June-24E target price of ₹525 per share, as we see firm structural prospects," said Emkay. The brokerage firm believes value unlocking in the hotels' operations remains a near-term catalyst.
As per media reports, ITC is trying to explore alternate structures for the hotel business and a separate listing of the hotel business is also one of the options considered.
Read more: ITC's demerger for hotel business underway
Emkay said that from the core cigarette business perspective, rational tax hikes may be possible ahead, given a higher share of the ad-valorem component leading to the build-up of volumes. This, along with improving mix, would aid a high-single-digit EBIT growth, said Emkay.
"Going ahead, we see ITC's EBIT growth moderating, albeit remaining relatively better at a high-single-digit over FY23-26E versus 2 per cent CAGR over FY16-21. We see tailwinds from (i) the higher ad-valorem component in taxation limiting the need for any sharp tax hikes, (ii) connecting with youth with innovative formats, (iii) fortified portfolio driving legal volumes, and (iv) improving sales mix with gradual consumer up-trade," said Emkay.
In non-cigarette operations, Emkay sees profitable growth and an improving return profile, where segments are self-sufficient to address their growth needs. For the F&B (food and beverages), agri export and paper segments, Enkay believes execution will be the key.
"We continue to see ahead-of-time capex as a business moat, which enhances the company’s structural prospects. ITC’s valuation re-rating has been a factor in the conducive setting of the cigarette business and profitable growth across other segments. We maintain a positive outlook and see a 'K-shaped' recovery in ITC’s ‘Other FMCG’ business. Value unlocking in hotel operations is a near-term catalyst," said Emkay.
The brokerage firm said a sharp tax hike for cigarettes, its entry into the low-margin and long gestation categories and the overhang from the government’s SUUTI stake sale are the key risks to its call.
Disclaimer: The views and recommendations given in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
- Top Gainers
- Top Losers
- 52 Week High