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ITC Stocks Light Up: Shares Up 23% Year-to-Date; Analysts See Potential Gains of 27%

After domestic brokerage house Motilal Oswal Financial Services (MOSL) upped its recommendation on the company to "Buy" with a target price of Rs 335 per share, ITC shares were up 1.4% at Rs 267.10 on the BSE on Thursday. The upgrade, according to Motilal Oswal, is the result of better than anticipated demand recovery, a healthy outlook for cigarette margins, sales momentum in the FMCG industry, less drag from the hotel industry, and improved capital allocation in recent years.

"In recent years, there has been a steady tax environment for cigarettes, which has allowed ITC to calibrate price rises to prevent a decline in demand. In the medium term, increased cigarette volumes and profits visibility should arise from this trend, which we anticipate will continue. In a market with continually shifting demand, ITC has an advantage due to the variety of FMCG products it offers. Its leadership in some categories allows it to set prices that can counteract rising input costs in other categories, where pricing power is weaker, the company said.

ITC Share Price History

ITC has outperformed the market in the calendar year 2022 (CY22), after lagging for the previous three consecutive years. I had a 4% increase in CY21 compared to a 22% rally in the S&P BSE Sensex. The stock has experienced 16% and 12% declines in CY19 and CY20, respectively, compared to increases of 14% and 16% in the benchmark index, respectively. ITC has outperformed the market thus far in CY22, rising 23% compared to a 9% decrease in the S&P BSE Sensex. Additionally, compared to a 1% rise in the benchmark index, the stock has increased by 28% in a year.

ITC Stock Outlook

The analysts at Motilal Oswal claim that cigarette taxes have remained comparatively stable in recent years. As opposed to the climate of larger tax hikes between FY13 and FY17, this has allowed ITC to adjust its price increases to avoid disturbing demand. In the medium term, they predicted that this tendency would result in increased cigarette volumes and earnings visibility. We currently anticipate a volume growth of 3–4% over the following couple of years, especially if the tax incidence stays low, the brokerage noted, as the severity of additional COVID-19 waves is waning.

In a market with continually shifting demand, ITC has an advantage due to the variety of FMCG products it offers. According to the research, the company's pricing power allows it to counteract the pressure from rising input costs in other sectors where its pricing power is less. According to the experts, the company is an excellent defensive player in the current volatile interest rate environment because of the durable character of its core business, despite an uncertain industry environment, and its 4-5% dividend yield. ITC's Earning CAGR at the PBT level was 5% between FY17–22, and the brokerage anticipates that figure to rise to 15% over FY22–24.

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