Brokerages upbeat on ITC on strong quarterly show

MUMBAI: A host of brokerages, including some of the biggest names on Dalal Street, upgraded ITC stock after the cigarettes-to-hotels company announced robust quarterly numbers on Friday. With several of the brokerages setting a price target of around Rs 400 for ITC, the upside from Monday’s closing level is about 15%. This gain could accrue in addition to the 5%-plus rally in ITC on BSE on Monday, which closed at Rs 347.
In addition to the robust performance that included a marginal growth in cigarettes volumes after 11 quarters of declines, the company also announced a a Rs 8.50 dividend per share and an 1-share-for-2-shares-held bonus offering.
According to analysts and dealers, CLSA, one of the most respected foreign brokerages on the Street, upgraded the ITC stock to ‘buy’ and raised its target price to Rs 400 from Rs 370 earlier as it expects acceleration in ITC’s earnings growth to 10% over FY17-18.
Citibank’s brokerage arm too upgrade the stock to ‘buy’ with a target price of Rs 390 from Rs 335. “We see a very gradual re-rating driven by three factors: Legislative headwinds somewhat abating (though there’s still a GST overhang), the meaningful downward mix shift to < 65mm (cigarette length which attracts much lower excise duties) is reflected in the base, and coinage impact on key brands should subside over the next twelve months,” the brokerage house said.
Morgan Stanley, another leading foreign brokerage, has an ‘overweight’ rating on ITC with a target price of Rs 395. It believes a “strong cigarette business performance may catalyze stock re-rating.” Bank of America Merrill Lynch on the other hand increased the Kolkata-headquartered company’s target price to Rs 410 but reiterated its ‘buy’ rating.
Among the domestic brokerages, Motilal Oswal Securities too raised the target price to Rs 400 mainly on the back of a surprise uptick in cigarette volumes as its analysts feel that the worst seems to behind the company. Earlier, most analysts covering the company were cautious because of the government’s move to raise excise duty on cigarretes, ITC’s main business and also put in several other regulatory hurdles, aimed at curtailing tobacco consumption in general.