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Business News/ Markets / Stock Markets/  ITC share price up 72% in last one year; is it still a buy?
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ITC share price up 72% in last one year; is it still a buy?

Brokerage firm Emkay Global Financial Services predicts the stock will continue to rise. Technical analysts suggest booking some profit and accumulating the stock at lower levels due to a possible price or time-wise correction.

ITC stock has outperformed the benchmark Sensex eight times in the last 14 years (since 2010). Photo: Reuters (Reuters)Premium
ITC stock has outperformed the benchmark Sensex eight times in the last 14 years (since 2010). Photo: Reuters (Reuters)

ITC is among the top gainers in the 30-share pack BSE Sensex this year so far and the stock remains one of the most attractive stocks at this juncture for the medium to long term as the company is witnessing all-round growth across segments.

ITC shares are up 72 per cent in the last one year against a 39 per cent gain in the BSE FMCG index and a 22 per cent gain in the equity benchmark Sensex.

ITC has outperformed the benchmark Sensex eight times in the last 14 years (since 2010). After strong underperformance from 2019 to 2021, the stock outperformed the Sensex in 2022 by a huge margin. In the year 2023 so far, ITC shares are up 37 per cent against a 4 per cent gain in the equity benchmark Sensex.

ITC return year-wise.
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ITC return year-wise. (Capitalmarket)

Analysts and brokerage firms expect the stock to rise even further.

As Mint reported earlier, in Q4FY23, ITC posted a 22.7 per cent year-on-year (YoY) growth in consolidated profit to 5,225.02 crore. Revenue from operations also surged by 7.3 per cent YoY to 19,058.29 crore.

During the quarter, the company's cigarette revenue jumped by 13.7 per cent YoY driven by about 12 per cent volume growth. FMCG reported an all-time high EBIT margin of 10.1 per cent, partly aided by PLI incentives. Hotels reported a strong quarter, whereas Paperboards was a tad soft.

Commenting on ITC's earnings, brokerage firm Motilal Oswal Financial Services said: "At a time when uncertainty looms over the industry due to high inflation, unpredictable monsoons, and continued weak rural sales, ITC’s earnings performance in the last couple of years has shined like a beacon."

Read more: Is ITC stock the titan in the FMCG sector? Majority brokerages raise target price, here's why

Brokerage firm Emkay Global Financial Services initiated coverage on ITC stock with a 'buy' recommendation on June 19, pegging the target price of 525 which is a 16 per cent upside from the stock's close of 453.50 in the previous session.

"Based on the sum-of-the-parts (SOTP) approach, we arrive at the Jun-24E target price of 525. Our valuation is based on P/E (price-to-earnings ratio) for the cigarettes and infotech businesses, on EV/EBITDA for the paper and hotels business, and on EV/sales for the other FMCG and agri-businesses," said Emkay.

Emkay values ITC's cigarette business at about 240 which is 46 per cent of the target price, based on 21 times Jun-25E EPS (earnings per share) of 11.5.

The brokerage firm values ITC's FMCG business at 141 which is 27 per cent of the target price, on seven times Jun-25E sales, at a 15 per cent discount to Indian FMCG peers. The brokerage firm believes the K-shaped recovery is likely to amplify ahead.

"Revenue scale-up across the non-cigarette business will lead to better margins and lower capex needs will give a boost to the returns profile of non-cigarette operations," said Emkay.

Besides, Emkay values the paper and hotel businesses at 12 times and 22 times EBITDA for Jun-25E and sees faster scale-up in both businesses. Emkay values the agri-business at three times EV/sales for Jun-25E.

Emkay observed that ITC has seen steady re-rating over the last 12 months, with the waning of the Covid impact. The brokerage firm sees value unlocking, as ITC seeks an alternate structure for hotels and it believes ITC may consider such a structure for its infotech division too.

"The stock price-to-earnings ratio (PER) valuation is now above its last-five and ten-year average forward PER. Given strong business fundamentals and better execution, we continue to see a re-rating in the stock," said Emkay.

"The incremental upside would be driven by rising comfort on the margin-led upside in ‘other FMCG’ and possible value unlocking (demerger/alternate capital structure for its hotels/infotech businesses). In its quest to diversify operations, ITC has charted a forceful capex over the last decade which we believe would, in turn, strengthen its outlook for the next decade," Emkay said.

The stock appears to be an attractive long-term buy. However, technical analysts advise booking some profit and accumulating the stock at lower levels.

Aditya Gaggar, the director of Progressive Shares, observed that this heavyweight stock has been moving in tandem with the uptrend of the FMCG sector with a higher top-higher-bottom formation.

"From the lows of March 2020 ( 135) to date ( 452), the stock has rallied more than 200 per cent without any considerable pullback. In the higher timeframe i.e. monthly chart, momentum indicator RSI stands at 85 which indicates an extremely overbought condition, and at the same time double negative divergence was spotted on the daily chart which is pointing toward the much-needed correction," said Gaggar.

"Going forward, we can see price or time-wise correction. In the case of price-wise correction, investors should capitalise on such an opportunity to add the stock to their portfolio (if it comes to around 433) while in time-wise correction, the stock will consolidate in a range and indicators will reverse to normal levels," Gaggar said.

Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers pointed out that for the last couple of years, this counter has been in a solidly established uptrend, constantly trading above all critical exponential moving averages.

"At the current juncture, the negative divergence has emerged on a daily scale where price action is making higher highs, but RSI is making lower highs. So, as we advance, we can expect some profit booking in ITC. The best price to buy would be in the range of 430-435 and the upside is expected around 480 and a stop loss of 410 on a daily close basis," said Patel.

ITC technical chart
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ITC technical chart

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Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 20 Jun 2023, 01:38 PM IST
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