Brokerages raise target price of ITC post Q3 results; sees up to 22% return

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Cigarette and FMCG major ITCsaid that it has to bear an incremental tax burden of over 20 percent due to the combined impact of increase in excise duty in Budget 2017 and revision in GST compensation cess on cigarettes.

The upward revision resulted in significantly higher tax incidence on cigarettes compared to the pre GST scenario which is not in keeping with the fundamental principle of revenue neutrality,” ITC said.

The company on January 19, 2018 reported 16.75 percent increase in standalone net profit at Rs 3,090.20 crore for the December quarter. Revenue from operations increased 5.7 percent on a YoY basis to Rs 9,772 crore for the quarter ended December 2017 compared to Rs 9,248 crore reported in the year-ago period.

Brokerage: Jefferies | Rating: Buy | Target: Rs 320

Jefferies has maintained a buy on ITC and has raised the target price to Rs 320 from Rs 302. The house feels that Q3FY18 results was a mixed bag adding that cigarettes and volumes were soft with resilient margins. However, it is of the view that FMCG showed strong all-round show.

Other businesses and hotels has taken the lead and expects gradual recovery in ITC cigarette volumes with better recovery in other businesses led by other FMCG.

Brokerage: Deutsche Bank | Rating: Buy | Target: Rs 350

Resarch firm Deutsche Bank has also maintained a buy and has raised the target to Rs 350 from Rs 325. It is of the view that results in Q3FY18 was in-line with estimates.

The firm feels that cigarette volume declined 4 percent YoY, but was flat QoQ. ITC’s FMCG division reported healthy sales growth of 16 percent with high probability of rational tax increase in February 2018 which is a potential re-rating event, it added.

Brokerage: Macquarie | Rating: Neutral | Target: Rs 304

Macquarie has maintained a neutral rating on the stock with a target of Rs 304 per share and has cut estimates by 2 percent on account of lower realisation, adding that cigarette volume is likely to remain under pressure.

However, the research firm is of the view that there is limited downside for the stock with valuation support at current level. Any re-rating will depend on the government’s decision of FY19 cess, it said.

Brokerage: Credit Suisse | Rating: Neutral | Target: Rs 320

Global research house Credit Suisse has maintained a neutral rating on ITC and has raised the target to Rs 320 from Rs 310 per scrip. The firm is of the view that Budget 2018 holds the key for the stock and feels that tax hike needs to be below 10 percent for the stock to get re-rated.

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