Brokerages see up to 25% upside for ITC post BAT stake sale

With today's sharp rally, technically ITC is seen trading close to its long-term moving average on the daily charts.

The stock of ITC surged nearly 9 per cent to a high of Rs 439 in Wednesday’s intra-day deals on heavy volumes amid buzz of British American Tobacco (BAT) stake sale.

At 10 AM, ITC quoted at Rs 427, up 6 per cent on trades of around 439 million shares on the BSE. Reports suggested that BAT planned to sell up to 3.5 per cent stake, a deal involving 436.9 million shares via block deals today. READ MORE

ITC has been an underperformer in the calendar year 2024 so far, having declined almost 12 per cent as of March 12, as against a near 3 per cent rise on the Nifty 50. The stock had hit its all-time high on July 24, 2023 at Rs 499.70.

Since then, it has tumbled over 19 per cent.

Market experts believed that BAT’s likely stake sale was an overhang for the stock in the last few months. Hence, the stock had underperformed on the bourses.

“The stake sale by BAT removes the overhand on the stock, it had fallen from Rs 480-490 levels partly because of this. At the current levels, this is a good stock to buy from a 12-month perspective, it can rally by up to 25 per cent from hereon in the next 12 months. We have a 'Buy' rating on the counter,” says Shrikant Chouhan, Executive-Vice President, Kotak Securities.

G Chokkalingam, Founder, Equinomics Research Private says the buzz that foreign investors were showing interest in acquiring the 3.5 per cent stake in ITC, gives a lot of confidence to the investors.

“That apart, ITC has already announced its hotel demerger plan, hence there is clarity on what the shareholders are likely to get. And, we are positive on FMCG as a sector going ahead,” adds Chokkalingam.

Meanwhile, foreign brokerages too have upgraded ITC with a potential upside of up to 14 per cent from present levels, post the BAT stake sale.

Morgan Stanley expects ITC’s outperformance to resume post stake sale. The brokerages remain bullish on the stock owing to expectation of a moderate cigarette tax environment, continued scale-up of non-cigarette businesses and reasonable valuations. They expect an upside of over 14 per cent for the stock at Rs 491.

Similarly, analysts at HSBC believe that the stock can potentially rally to Rs 480, as the valuations for the cigarette business remains attractive.

CLSA believes that FMCG is gradually becoming the key driver for ITC. The agribusiness is expected to stabilse with value-added products. The brokerage, however, foresees cigarette volumes to remain muted. CLSA sets its target price at Rs 468.

Further rally on the cardsFurther rally on the cards

ITC

Current Price: Rs 429

Upside Potential: 10.3%

Support: Rs 410

Resistance: Rs 435; Rs 440

Following Wednesday’s sharp jump, ITC is seen trading above its short-term moving averages, namely 20-DMA (Daily Moving Average), which stands at Rs 410 on the daily scale. The 20-DMA is now expected to act as a support going ahead.

At the day’s high point, the stock came within striking distance of the 200-DMA, which stands at Rs 440. The stock needs to break and close above the 200-DMA, in order to resume its long-term uptrend. CLICK HERE FOR THE CHART

For now, the stock may witness some consolidation, as it battles the key hurdles around 50-DMA and 100-DMA at Rs 431 and Rs 435, respectively.

Sustained trade above Rs 435 can potentially trigger a rally towards Rs 473, which suggests an upside of 10.3 per cent from present levels.

Investors make beeline 

Close to 70 funds — both domestic and foreign — made a beeline to buy shares of ITC sold by British American Tobacco (BAT) on Wednesday. Among the large buyers were ICICI Prudential Mutual Fund (bought nearly 1 per cent equity for Rs 4,963 crore), Gover­nm­ent of Singapore (Rs 3,664 crore), and Capital World (Rs 1,064 crore).

BS REPORTER