ITC shares rise after analysts meet; Jefferies sees 17% upside

Shares of ITC rose 1% in intraday trade on Wednesday after the FMCG-to-hotel conglomerate hosted its institutional investors and financial analysts on Tuesday. In the analysts' meeting, the Kolkata-headquartered diversified business group highlighted its growth imperative led by innovation, efficient and agile supply chain, digital ecosystem, and cost optimisation. The company's management has guided an annual capital expenditure of ₹3,000-₹3,200 crore, of which around 40% to be utilised towards FMCG business. The company proposes to use 35% of capex towards technology and 25% in agribusiness.

Extending gainthe ing streak for the third day, ITC shares opened higher at ₹456.95 against the previous closing price of ₹453.10 on the BSE. During the session so far, the stock gained as much as 1.26% to hit an intraday high of ₹458.85, while the market capitalisation rose to ₹5.67 lakh crore.  

ITC shares touched its record high of ₹499.60 on July 24, 2023, and currently trades 8% lower than its all-time high levels. The stock hit its 52-week low level of ₹325.35 on December 23, 2023. In the last one year, the FMCG heavyweight has risen 32%, while it gained nearly 37% in the calendar year 2023. The counter seemed to have lost momentum in the recent past, adding just 2% in the six-month period, while it rose 4% in a month.

Post analysts meet, most analysts have retained their positive stance on ITC shares, citing the company’s future growth potential. Prabhudas Lilladher has maintain ‘Accumulate’ rating on ITC shares with target price of ₹492. While Emkay Global Financial has retained ‘Buy’ with a price target of ₹525, Jefferies also reaffirmed ‘Buy’ rating with the potential upside of 17%, setting a target price of ₹530 per share.

Prabhudas Lilladher in its report says that ITC continues to innovate and improve GTM (go-to-market strategy) initiatives even as cigarette business growth seems to be a function of taxation policy. “ITC is aiming for 80-100 basis points margin expansion in new FMCG business led by premiumisation, scale and cost optimisation. Hotels business is in for strong growth with huge scope to grow and rising average room rate (ARR) /occupancy.”

“We found Food Tech and Nicotine derivative exports as two exciting businesses with a scope to create strong moats in long term. We continue to believe that FMCG and IT Services will create huge value for shareholders over the years,” the report notes.

The brokerage remains positive amid innovation and digitisation-led strategy with sustained growth and a 100% jump in return on capital employed (ROCE) of non-cigarette businesses and overall ₹94,700 cash generation in the last 10 years. 

On hotel business, Prabhudas Lilladher says that ITC is poised for sustained growth given strong trends in occupancy, 20% capacity with less than 5-year linage. The company targets to open 25 hotels in 2 years, and 200 hotels with 18,000 rooms with two-third managed hotels.

Meanwhile, ITC is focussing on maximising cigarette potential within tobacco basket (9% currently) by reinforced market standing and expanding category share. Within the classic brand (40-year-old), the company has launched 5 new variants over the last 5 years, contributing 17% of the portfolio.

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)