ITC stays on Goldman Sachs ‘buy’ list with hope of revival in cigarette volumes

International investment banking firm Goldman Sachs retained its ‘buy’ call on ITC as cigarette volumes are expected to recover in the upcoming quarters.

The target price was kept unchanged at Rs 480 per share. From the closing price on February 28, this implied an upside of around 17.6 percent.

At 9.20am, shares of ITC were quoting Rs 407.7 on the NSE, lower by 0.15 percent than the previous session’s closing price.

So far this year, ITC shares have tanked around 13 percent. Goldman Sachs attributed this to the weak near-term earnings and the overhang of the British American Tobacco stake sale.

BAT plans to pare its stake in ITC from 29.03 percent to 25 percent. The 4 percent it is looking to sell translates to around 50 crore shares worth Rs 20,000 crore at the current market price.

The availability of such a huge block of shares means that prospective investors looking to buy a large quantity need not buy it from the open market and risk driving up the price.

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The firm expects that ITC’s cigarette volumes will see a recovery from the degrowth in Q3FY24. The tobacco arm’s EBIT is expected to record an 8 percent CAGR, given that there will be no changes in the current cigarette taxation regime. The arm is trading at an implied FY26 PE of 15x.

A drag that ITC might face is its paper business, noted Goldman Sachs. It is poised to drag the topline over the first half of FY25, with a recovery likely only in H2FY25.

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