ITC analyst meet | The company will invest Rs 10,000 crore in the next three years, of which 35-40 percent will go towards capacity expansion in the FMCG business.
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Cigarette major ITC’s shares rose in early trade on December 15 after the company discussed taxation on cigarette business, demerger plans and the strategy for the FMCG business in its first ever investor meet on December 14.
In the investor meet, ITC’s top management stressed that the health ministry makes regular recommendations annually, as it tried to allay concerns about higher taxation on its mainstay cigarettes business.
“We expect a rational decision by the government after considering all aspects and expect any increase in taxation to be well spaced out in any case,” said ITC Chairman Sanjiv Puri, according to analysts who attended the event.
The company’s demerger plans and its strategy for the FMCG business were other highlights of the occasion, analysts told Moneycontrol.
Puri indicated the company is open to look at a demerger of the FMCG business or a separate listing of its IT business to unlock further potential. He also talked about demerger plans for the company’s hotel business, which will be looked at once the hospitality industry recovers.
Also Read – ITC allays concerns about higher tax on cigarettes, discusses demerger plans in first-ever investor meet
ITC is looking at merger and acquisition opportunities, especially for its FMCG business after a good performance in recent acquisitions– Savlon, Nimyle, Sunrise.
The company has set a Rs 1 trillion revenue by FY30 for its FMCG business, and Puri said the company is committed to building a large FMCG business in the country.
The company also said it will invest Rs 10,000 crore in the next three years to create growth vectors. Of this, 35-40 percent would go towards FMCG capacity expansion, while 25-30 percent will be in ITC Paperboards.
About 10 percent of the capital would be spent on completing its major hotel projects and the rest will be to build digital capabilities.
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Here’s what brokerages have to say about the stock and the company post the investor meet:
CLSA
Maintain “buy” on ITC with target at Rs 275 per share.
The company is looking to leverage its power brand into adjacencies and drive margin expansion, and the management expects to use acquisitions to drive scale.
The management said a stable tax regime is positive for the tobacco sector.
The company is now open to alternate structures in its hotels and infotech businesses.
FMCG value unlocking remains a focus even with a possible demerger.
UBS
Retain “buy” with a target price of Rs 280.
According to the management, cigarette volumes are likely to grow with improving mobility in FMCG.
For hotels, demerger is an ongoing discussion, but more likely once the industry normalizes.
Morgan Stanley
Maintain “overweight” rating on the stock with target at Rs 251.
The management is focussed on creating sustained shareholder value.
The company remains committed to its plan of restructuring the hotels business as the industry stabilizes.
Jefferies
Maintain “buy” call on ITC with target at Rs 300.
The digital interventions are touching all aspects of its business.
The maiden analyst meet shows how the management is working towards making the company a future-ready enterprise.
JPMorgan
Keep “neutral” rating on the stock with target at Rs 238, as the valuations at 17x FY23E are not demanding.
Revenue recovery momentum is improving across cigarettes, hotels and the paper business.
The budget session will be keenly watched for any potential tax change on cigarettes.
Motilal Oswal
The analyst meeting was a welcome move by the management as it provided a platform for a comprehensive discussion on the prospects and concerns of its various businesses.
While the stock has delivered ~8% return over the last three months, it has considerably underperformed its benchmark and consumer peers over the last five years.
We value ITC at 15x Dec’23E EPS. We maintain our target price of Rs 240 per share and our neutral rating.
Sharekhan
ITC’s management has enhanced focus and redefined growth strategies for all its business verticals to improve its growth prospects in medium to long term.
The company has sustained ESG rating of AA by MSCI-ECG, the highest among global tobacco companies.
The management is committed towards restructuring of its hotel business post recovery in the industry, and it will evaluate unlocking value in the Infotech and FMCG businesses once it attains scale. However, there is no stated timeline for the restructuring.
We maintain our buy recommendation on the stock with an unchanged price target of Rs 280.
Prabhudas Lilladher
We remain positive on the business strategy, although uncertainty on cigarette taxation and global aversion to investment in tobacco stocks remains an overhang.
ITC trades at 16.3x Sept23 EPS, with ~4.5% dividend yield and 10.7% EPS CAGR over FY21-24, 55% discount to coverage universe. Maintain “buy” with SOTP based target price of Rs 270.
At 09:16 hrs, ITC was quoting at Rs 230.30, up Rs 2.00, or 0.88 percent on the BSE.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
