Home / Markets / Stock Markets /  ITC shares hover around 5-year high. Axis Securities has 'Buy' tag

With a stable taxation regime, domestic brokerage and research firm Axis Securities believes ITC is poised to deliver encouraging performance moving forward. It also remains positive on the recovery in the cigarette segment (back to pre-COVID level on an exit basis),as well as on the structural uptick in the FMCG revenue/margin and recovery in the Hotels and Paper & Paperboard divisions.

“In light of benign taxation, inexpensive valuations, and 5% dividend, we recommend a BUY rating on ITC shares with a revised target of 380, implying an upside potential of 17% from the CMP," the note stated. Though, key risks, as per Axis Securities could be regulatory announcements to curb cigarette consumption through tax hikes and RM inflation.

ITC reported a healthy performance across segments despite a challenging operating environment driven by COVID-19 induced uncertainty and volatility as well as due to historically high inflationary headwinds,geopolitical tensions, and supply chain disruptions which led to high ocean freight.

However, the company mitigated the unprecedented increase in key input prices by undertaking focused cost-management measures across the value chains as well as through premiumisation, product mix enrichment, judicious pricing actions, and fiscal incentives.

Key competitive strengths, as per the brokerage are, strong footing of the cigarettes business with resilient demand, diversified FMCG business with focus on the core business while addressing the adjacencies, FMCG margins to scale up due to revival in mobility, strong distribution reach

Growth drivers for the company would be focus on de-risking business model by reducing dependence on the core cigarette business (affected by regulatory and tax hurdles) and scaling up FMCG business, ITC Infotech business exhibiting notable potential, PLI linked incentives to help grow Agri business & drive exports, High dividend yield and reasonable valuations compared to peers, it added.

“Moving to asset-light hotel business (lag on margins to reduce), expanding cigarettes market share (shift from unorganised to organised), augmenting distribution network in FMCG business (with7 Mn outlets, the company’s direct coverage increased by 40% YoY), drive exports, explore growth through M&A route and focus on cost efficiency to protect margins as input cost pressure remains a concern," the note said.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


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