Shares of FMCG important ITC have faced a lot of heat from investors in 2020 for getting 1 of the worst performing Sensex constituents in 2020. ITC’s stock value dived a enormous 40% amongst the middle of January and the finish of March as the globe came to realize the gravity of the coronavirus. After recovering some losses in the initial weeks of April, ITC was once more a laggard on Dalal Street, slipping 12% amongst the middle of April and the finish of October. However, considering the fact that then the stock has mounted a comeback and gained 32% so far. This current efficiency, clubbed with other elements has attracted worldwide brokerage firms towards the stock.
What’s ahead now?
Global brokerage and investigation firm Credit Suisse, in a current note, mentioned that FMCG margins of ITC are now inside the acceptable variety when development prospects are enhancing. “ITC’s core brands like Aashirvaad and Sunfeast are well beyond investment phase, while fast growing brands like Savlon and Sunrise have high gross margins,” Credit Suisse mentioned. ITC is just behind Hindustan Unilever in FMCG enterprise income terms, but nonetheless the report believes the firm may perhaps develop its income in double digits more than the subsequent 3 years.
ITC also commands a robust position in the cigarette enterprise. Although its valuations are at discount to worldwide peers in the tobacco space, its ESG rating is AA by MSCI highest amongst worldwide tobacco players and much better than most Indian FMCG businesses. “This is backed by its strong credentials — ITC has been carbon positive for 15 years, water positive for 18 years and solid waste recycling positive for 13 years,” mentioned analysts at Jefferies. Although standing a top position in the ESG arena, ITC nonetheless has ambitious targets up ahead.
Considering the low probability of a sharp tax hike offered GST collections have strongly picked up, FMCG business’s EBITDA margin at 9.7% in second quarter, and enhancing ESG ranking of the corporation, domestic brokerage firm Edelweiss finds more steam in the stock’s upward march. However, analysts at Edelweiss have a wait and watch technique to see if the cigarette volume recovery.
Not convinced
Holding a contrarian view, domestic brokerage firm Motilal Oswal Financial Services, in a current report mentioned that it does not count on earnings development trajectory to recover drastically from the mid single-digit PBT trend in the previous 5 years. “A strong dividend yield alone is not enough of a comfort, particularly as it is in line with global peers in the Cigarettes business. Despite ongoing improvement in Other FMCG metrics, no material shift is likely in EBIT dependence on the Cigarettes business. The business’ contribution to total EBIT is likely to be 82% in FY23E v/s around 85% in FY20,” the report mentioned.
Target value
Credit Suisse has an ‘Outperform’ rating with a target value of Rs 255 per share. In a ‘Blue Sky’ situation the stock may possibly attain Rs 307 apiece, according to Credit Suisse. Jefferies has a ‘Buy’ rating with a target value of Rs 265 per share. Edelweiss has a ‘Hold’ rating but a target value of Rs 230 per share. Motilal Oswal is neutral on the ITC.