ITC scales to fresh high, m-cap inches towards Rs 6 trillion-mark

ITC outperformed the market for the eight straight months, has rallied 37% thus far in the calendar year 2023, as compared to 3.8 per cent rise in the S&P BSE Sensex.

Shares of ITC gained 1.4 per cent to hit a new high of Rs 453.90 in Friday’s intra-day trade. The stock of diversified fast moving consumer goods (FMCG) company surpassed its previous high of Rs 452, touched on May 31, 2023.

ITC outperformed market for eight straight months. So far in calendar year 2023, the stock rallied 37 per cent, as against 3.8 per cent rise in the S&P BSE Sensex.

A strong outperformance of ITC saw the conglomerate's market capitalisation (m-cap) inch towards Rs 6 trillion-mark. Currently, the company’s market cap stood at Rs 5.63 trillion, which is less than 7 per cent away to hit the milestone. Hindustan Unilever, the other FMCG company, has a market cap of Rs 6.32 trillion, data shows.

ITC is the biggest cigarettes & second largest FMCG company in India with around 80 per cent market share in cigarettes & presence in staples, biscuits, noodles, snacks, chocolate, dairy products & personal care products. The company is also present in paperboard, printing & packaging business, agri & hotels businesses.

Most brokerage houses are bullish on ITC as the company has seen strong revenue growth across businesses in the financial year 2022-23 (FY23). The company has also seen margin gains across business segments post input cost inflation was mitigated by sourcing efficiencies, premiumisation, supply chain efficiencies, and pricing strategies.

Analyst at ICICI Securities believe stable taxation in cigarettes as well as strong traction in high priced cigarettes have been leading to high volume growth (~19 per cent in FY23) as well as market share gains.

“We estimate cigarettes volume growth of 8 per cent & 5 per cent in FY24E & FY25E, respectively. Further, the March quarter has seen sharp 352 bps improvement in the FMCG business margins, led by PLI benefits, price hikes, sequential dip in commodities & premiumisation. We believe the company would be able to achieve its target operating margins expansion by 100- 150 bps every year by leveraging its strong brands through extension in many food adjacencies,” the brokerage firm said.

Moreover, analysts said that despite strong run up in the stock, it is still trading at attractive multiples compared to other FMCG companies.

The brokerage remains positive on the company's long-term growth outlook & maintained 'buy' recommendation, with a revised target price on stock of Rs 500 per share.

The FMCG sector witnessed positive volume growth after five consecutive quarters of decline, led by urban markets. Rural softness has likely bottomed out, given the reversal of the declining trend. Moderating input costs and retail inflation should help sustain demand recovery.

Analysts at HDFC Securities expect divergence between volume and value growth to normalise in FY24, with volume growth back to its historical average of mid-single digit.

“We believe there will be no more pressure on earnings for FMCG companies in FY24 (earnings cut cycle is behind), while both revenues and margins should see an uptrend. We remain cautious and selective on valuation for the medium term (do not see rerating as a story); however, earnings pick-up in FY24 will continue to support FMCG stocks,” the brokerage firm said.