CLSA says that the recent 24% correction in the shares of ITC provides a good opportunity, as the stock is now valued at a P/E which is at a discount to its 5-year average. (Image:Reuters)
ITC shares have tumbled by more than 24% in the last three months. The shares have returned just 8% in the year. However, CLSA and HDFC Securities say that the scrip is poised to gain in the coming months. CLSA has upgraded the scrip to buy with the target of Rs 310, an upward revision of more than 8% since the previous target of Rs 285. The shares were trading at Rs 268.2, up by more than 2.6% on Wednesday morning. CLSA says that the recent 24% correction in the shares provides a good opportunity, as the stock is now valued at a P/E of 27.5, which is at a discount to its 5-year average.
HDFC Securities has rated ITC Ltd’s shares as ‘buy’ with sequential targets of Rs 300 and Rs 322 over the next three-four quarters, citing strong growth potential while attributing the recent losses in the stock to overreaction in the markets. In its report, HDFC Securities says that ITC, which is the fourth largest FMCG player in terms of market capitalisation in India, has suffered at the hands of regulatory changes — a reference to an increase in the tax incidence for cigarettes under the GST regime.
The other segments of the company, specifically the foods division the agribusiness and the hotels business have good growth potential and may drive up the profitability due to the efforts taken by company, HDFC Securities said in a report. “With major capex in the hotels, foods business, reviving demand in the consumer segment, newer products in the agribusiness, and long term positive view on the cigarettes consumption in India, we expect company to drive up its profitability and get re-rated,” noted the firm.
In July this year, ITC shares posted a single day fall of 15%, its biggest loss in 25 years, wiping off more than Rs 85,000 crore worth of market capitalisation, as the GST council increased the cess on cigarettes. In the latest quarter, ITC reported a muted rise of 7.4% in its quarterly net profit, but said that cigarette revenues grew 7% — its third sequential quarter of improved performance. The net profit in the first quarter stood at Rs 2.560 crores as compared to Rs 2,384.67 crore reported in the previous fiscal in the same period.
