ITC shares outperform Nifty, up 20% so far in 2022; analysts see 27% further rally, check target price

ITC shares have jumped 20 per cent so far this year, outperforming Nifty 50 which has plunged 10 per cent so far in 2022 amid severe market volatility. ITC shares were up 1.4 per cent to Rs 264 apiece on the BSE intraday after the domestic brokerage firm Motilal Oswal Financial Services (MOSL) upgraded its rating on the stock and stated that shares may rally up to 27 per cent more, going forward. A better than expected demand recovery and a healthy margin outlook in Cigarettes, healthy sales momentum in the FMCG business, lower drag from the Hotels business, and better capital allocation in recent years led Motilal Oswal to turn constructive on the stock.

Stock Rating: Buy
Target price: Rs 335; Upside: 27%

The domestic brokerage and research firm has upgraded ITC shares’ rating to buy and has a target price of Rs 335 as demand was quick to recover to pre-pandemic levels after the second covid wave and Motilal Oswal’s channel checks suggest that demand remains robust. “While valuations of global Tobacco peers have been restored to their pre-pandemic levels (January 19), ITC still trades at a 27% discount to its Jan’19 valuations of 25.4x one-year forward EPS. We value ITC at 21x FY24E EPS, representing a 65% premium to its global peer average. We believe the premium multiples are justified, given its strong visibility over the medium-term and the defensive nature of its business, especially in a volatile macro environment,” the brokerage said in its note.

Improved Cigarette volumes, earnings visibility over medium-term

According to the analysts at Motilal Oswal, there has been relative stability with regard to taxes on Cigarettes in recent years. This has enabled ITC to calibrate its price increases to avoid disrupting demand, unlike the higher tax increase environment between FY13 and FY17. “We expect this trend to continue and should result in improved Cigarette volumes and earnings visibility over the medium-term,” they said. With the intensity of further COVID-19 waves decreasing, we now expect a volume growth of 3-4% over the next couple of years, especially if the tax incidence remains benign, the brokerage noted.

Good defensive bet amid market volatility

The breadth of ITC’s FMCG product portfolio gives it an advantage in a rapidly changing demand environment. Its leadership position in some categories gives it pricing power to offset increment input cost pressures in other categories, where pricing power is not as strong, the report stated. The resilient nature of its core business, amid an uncertain environment in the sector, and 4-5% dividend yield makes it a good defensive bet in the ongoing volatile interest rate environment, according to the analysts. ITC’s Earning CAGR at the PBT level stood at 5% over FY17-22 and the brokerage expects the company to post 15% earning CAGR over FY22-24.

It is worth mentioning that ITC stock has outperformed the market so far in this calendar year after underperforming in the past three consecutive calendar years. In CY21, ITC had gained 4 per cent against a 22 per cent rally in the S&P BSE Sensex. In CY19 and CY20, the stock had declined 16 per cent and 12 per cent, respectively, as compared to 14 per cent and 16 per cent surge in the benchmark index, respectively.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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