In the past one month, the stock of fast moving consumer goods (FMCG) company has rallied 30 per cent, as compared to 10 per cent rise in the S&P BSE Sensex. The stock was trading at its highest level since February 25, 2020.
On May 24, ITC announced that it had entered into an agreement with the spice major Sunrise Foods to acquire a 100 per cent stake in the company. "The proposed acquisition is aligned with ITC’s strategy to rapidly scale up its FMCG businesses in a profitable manner, leveraging its institutional strengths viz. deep consumer insight, a deep and wide distribution network, agri-commodity sourcing expertise, cuisine knowledge, strong rural linkages and packaging know-how," the company said.
ITC’s Aashirvaad range of spices is already a market leader in Telangana and Andhra Pradesh and the company is one of India's leading producers and exporters of high-quality food safe spices.
Meanwhile, ITC had revised its dividend distribution policy in March 2020 and increased its dividend payout to 80-85 per cent from 65-70 per cent and applicable from FY20 onwards.
Analysts at ICICI Securities note that in the previous two occasions of a step-jump in dividend payout (in 2004 and 2010), ITC had witnessed significant stock re-rating. The brokerage firm models a higher dividend payout in FY21 (Rs 15, including a special dividend).
"For ITC stock, there are other catalysts too -- potential market share gains (cyclical share gain era of VST Industries and Godfrey Phillips India may be coming to an end); FMCG scale up and profitability improvement; potential to accelerate cost savings through a supply chain recast as Foods business is scaling up well; and consensus expectation of demerger of FMCG business may be another catalyst," the brokerage firm said with ‘add’ rating on the stock and target price of Rs 220 per share.
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