ITC Ltd is well placed to record strong performance in 3QFY23, driven by a) strong double digit growth in cigarette volume, b) sustained momentum in Papers and FMCG business, and c) robust recovery in Hotels, which is expected to report best ever quarter, as per brokerage and research firm Antique Stock Broking.
“As per our channel checks, ITC’s cigarette off-take has continued to witness strong traction during 3QFY23 driven by stable prices over the past two years and increase in people’s mobility coupled with superior execution. Robust paper business performance is expected to continue driven by premiumization of portfolio with strong margins on the back of backward integration of pulp manufacturing,” the note stated.
FMCG business is expected to deliver double digit growth driven by sustained momentum in foods portfolio (especially biscuits) and, notably, Hotels is well positioned to report best quarter with increase in people mobility after two years of restrictions and higher ARR, as per the brokerage.
Conclusively, Antique Broking believes that ITC has a fair probability to post accelerated earnings growth and upgrade in earnings, which in turn should drive re-rating of the stock. The brokerage house remains optimistic and has maintained its BUY recommendation on ITC shares and target price of ₹419 apiece based on SoTP valuation, implying up to 29% upside from current level.
While there have been no increase in taxes on cigarettes post 2020, the brokerage believes, going ahead reasonable increase in taxes (<=10%) could lead to volume growth of mid-high single digit over the medium term.
“Greater focus on health during Covid-19 impacted volume, however, stable prices of cigarettes over the past two years and increase in out of home mobility led to recovery in cigarette volume. As per our recent channel checks, cigarette volume remains in double digits for 3QFY23 and the strong momentum is expected to continue,” it said.
During 2QFY23, three-year cigarette sales CAGR was 4%, which is expected to improve further in 2HFY23. Additionally, ITC is consolidating its market leadership through leveraging portfolio vitality, product accessibility, and superior execution, it added.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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