Brokerages turn bullish on ITC as valuations turn attractive; see 22% upside

Despite major changes in the company, ITC’s valuations remained below the FY14-18 average, said Goldman Sachs.

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From its peak, ITC’s stock price has corrected around 20 percent, creating a buying opportunity for investors as valuations turn attractive, according to top brokerages.

ITC‘s stock price saw some correction following the news of the stake sale by British American Tobacco. HSBC said the stock price correction implied an attractive valuation for its cigarette business. This further creates a good buying opportunity, despite any taxation overhangs. As a result, HSBC upgraded ITC to ‘buy’, with Rs 480 as the price target for the counter.

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The worries about the supply overhang will clear following the stake sale from BAT. Following the stake sale, ITC’s outperformance will resume, said Morgan Stanley.

The international brokerage is bullish on ITC based on its expectation of a moderate cigarette tax environment, continued scale-up of non-cigarette businesses and reasonable valuations. It maintained its ‘overweight’ call on ITC, with a target of Rs 491 apiece. From the closing price of March 12, this implied an upside of 22 percent.

Also Read | BAT to sell 3.5% ITC stake for Rs 16,775 crore; offers shares at 5% discount

Despite major changes in the company, cigarette tax structure and operating environment, ITC’s valuations remained below the FY14-18 average, said Goldman Sachs. The firm has seen a significant transformation since FY18. The international brokering firm has a ‘buy’ rating on the counter, with a target price of Rs 480 apiece.

According to CLSA and Goldman Sachs, the FMCG business is gradually becoming a key driver of growth, as the segment scales up and sees a sharp increase in profitability.

CLSA added that quick commerce will accelerate the company’s premiumisation thrust. The brokerage is bullish on ITC, upgrading it to a buy, with a price target of Rs 486 per share.

On March 12, ITC’s share price settled at Rs 401.9, lower by 1.83 percent on the NSE.

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