Despite a steep rise, Emkay Global sees more steam in the stock, and initiates coverage with a target price of Rs 525. This is an upside of 16% from the current levels.
The brokerage has given a Buy and its target price is based on June-2024 estimates. It values the cigarettes business at 21x PER (price-to-earnings ratio), and FMCG Others business at 7x Jun-25E sales.
ITC has seen steady re-rating over the last 12 months, with the waning of the Covid impact.
“We see value unlocking, as the conglomerate seeks an alternate structure for hotels business,” Emkay maintained, adding that it believed the company might consider such a structure for its Infotech division too.
“Cross synergies and huge ambitions for its FMCG business may restrict any demerger, but scaling-up of the segment could be a typical case of a low-growth but large FCF-generating business, successfully seeding high-growth and value-creating operations,” it said.
Emkay believes the K-shaped recovery will likely get amplified going forward, while revenue scale-up across the non-cigarettes business might lead to better margin.
In its quest to diversify operations, ITC has charted a forceful capex over the last decade which the brokerage believes would, in turn, strengthen its outlook for the next decade.
Moving ahead, Emkay said the FMCG major would not need any material capex for its businesses. “Incremental capex will only be for capacity expansion in its paper business, to build backend in its FMCG business and for technology upgrades.”
ITC has once again breached its previous record to scale fresh highs on Monday.
“The flag pattern target has been achieved along with the RSI being in the overbought state. This can attract profit booking, which can lead to a small correction. The overall trend remains up and moving forward the support level of the lower trendline remains at 400 – 420 levels,” said Sanket Thakar CMT, Founder Alpha Bot Capital.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)