The shares of ITC Limited surged 19% in March, which is the highest in 16 months, even as its peers dropped on fears of margin pressure due to rising input costs. The shares are currently trading at ₹ 250.55.
Many FMCG stocks such as Godrej Consumer, Nestle India, Hindustan Unilever, Marico and Dabur India were under pressure due to an increase in input costs amid factors like disruption in the global supply chain, rising crude and global commodity rates due to the Russia-Ukraine conflict and the pandemic.
However, analysts expect ITC to be the least affected by the rural slowdown as its product portfolio mainly comprises foods. They say that the company has a good inflation hedge as its core business is immune to inflation risk.
ITC is one of the largest consumer companies in India and some of its main businesses include cigarettes, agri-commodities, hotels and paper.
Analysts say that its agri-commodity businesses are likely to benefit from wheat exports because of the Ukraine crisis, provided that the Indian crop is good, regulators have a conducive policy and India’s food inflation does not become a big challenge.
The number of COVID cases is falling and a greater number of foreigners have started to flock in. This is leading to a recovery in the hospitality business and ITCs hotel business will also benefit from it as a result.
Offices, educational institutions and courts are reopening, leading to an increase in the demand for paper and this is a good sign for its paper business.
What are analysts saying?
“Given there are no hurdles both on the investing side as well as on the business side, money has started coming into ITC and that is where we have seen the action,” said Deven R Choksey, MD, KRChoksey Holding.
Deepak Shenoy from Capital Mind said that for the last month, ITC seems to have done well but if we look at it for a four or five-year chart, he does not think that it is going to be very exciting for anybody to look at and therefore this is not really a fundamental move. Nothing fundamental has changed for ITC.
He said that it would be better if it were demerged into three businesses; the cigarette, the FMCG and the hotel businesses, but that might not happen in the near term. He said that this is where investors have to worry because the other businesses are dragging down the enormous cash flow that the cigarette business builds.
Targets
On March 31, Brokerage firm Edelweiss has given a buy call with a long term target price of ₹450 apiece, up 79.60% from its current market price. It has recommended to keep a stop loss at ₹220 apiece.
It expects ITC’s multiples to re-rate led by a 12% compounded growth in profit after tax between FY22 and FY24 against a 7% compounded earnings growth in the last five years and receding concern on the environment, social and governance (ESG) factors.
Disclaimer
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