The shares of India’s largest tobacco company surpassed the Rs. 500 mark for the first time following a “buy” upgrade by Jefferies India, after the announcement from Finance Minister Nirmala Sitharaman during Union Budget 2024-25 that there would be no tax changes for the tobacco industry.
With a market capitalisation now standing at Rs. 6.17 lakh crore, the shares of ITC Limited rose by 3.8 percent on BSE, reaching a new 52-week high at Rs. 510.60 during Wednesday’s trading session, as against its previous closing price of Rs. 492.05.
Brokerage Target
Jefferies India has issued a ‘buy’ recommendation on ITC Limited, setting a target price of Rs. 585 per share, indicating a potential upside of nearly 19 percent from the closing price of Rs. 494.05 on Wednesday.
This recommendation came following the Finance Minister’s decision to maintain the same taxes for the tobacco sector and follows a substantial 16 percent hike in the National Calamity Contingent Duty (NCCD) introduced last year.
Brokerage Outlook
According to reports, Jefferies highlighted that the Union Budget 2024-25 kept tobacco taxes unchanged, which was a positive development for ITC.
The last increase in tobacco taxes, a 2 percent hike, occurred in February 2023. This consistency allows ITC to concentrate on increasing volume while minimising price hikes, Jefferies noted.
Additionally, Jefferies pointed out that GST taxes are anticipated to remain unchanged until March 2026, pending the settlement of state government dues by the central government.
Improved demand in the staple sectors is expected to benefit ITC’s key businesses. While the February 2025 Budget will be significant, Jefferies suggested that a modest price increase this year will lay the groundwork for the following year.
The brokerage also revised upward its estimates for ITC’s Earnings Per Share (EPS) by 1-2 percent.
Moreover, there is a positive outlook for the staple sector’s demand. It is expected that a revival in rural demand will particularly favour ITC’s non-tobacco segments, including FMCG and agriculture.
Also read
The decision of Finance Minister to increase rural allocation in the Union Budget 2024-25 by 12 percent further supports this optimistic outlook.
Jefferies mentioned that ITC’s growth in cigarette EBIT slowed to 4 percent in the latter half of FY24, compared to 10 percent in the first half and 21 percent in FY23. This moderation was attributed to normalisation in volumes and input cost inflation.
With the tax framework for cigarettes clarified, ITC aims to enhance revenue through increased volumes, strategic price hikes, and better mix. As input cost inflation is anticipated to alleviate by the latter half of FY25, this is expected to facilitate margin expansion.
Jefferies anticipates progress in cigarette EBIT growth, forecasting an increase from 4 percent year-on-year in the second half of FY24 to 7 percent in the first half of FY25, with expectations of reaching double-digit growth by the end of FY25.
Financials:
The company experienced significant growth in its revenue from operations, showing a year-on-year rise of around 2.6 percent from Rs. 18,799 crore in Q4 FY22-23 to Rs. 19,291 crore in Q4 FY23-24.
However, its net profit fell during the same period from Rs. 5,225 crore to Rs. 5,187.2 crore, indicating a decline of 0.7 percent YoY.
Shareholding Pattern:
As per the shareholding pattern of June 2024, the Foreign Institutional Investors (FII) hold a 40.47 percent stake, while Retail Investors and Domestic Institutional Investors (DII) hold a 15.5 percent and 44.02 percent stake in ITC, respectively.
Stock performance:
The stock has delivered positive returns of nearly 5 percent in one year as well as around 6.5 percent returns in the last six months. So far in 2024, the shares of ITC have given about 5.8 percent of positive returns.
About the company:
ITC Limited is primarily engaged in the consumer goods space, particularly cigarettes, and operates in four main business segments: Fast Moving Consumer Goods (FMCG); hotels; paperboards, paper, and packaging; and agri-business.
Written by Shivani Singh
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
