The awakening of giant! ITC hits a new 52-week high. Should you invest
Premium- Compared to its fresh 52-week high, ITC stock has gained by a whopping over 44% in a year. Meanwhile, its growth is nearly 34% so far in 2022.
FMCG major, ITC extended its 52-week high on Tuesday on BSE before correcting in the closing hours of trading. ITC has also broken the record and turned into a Nifty topper. Not just that, ITC stock has reached 3-year high on stock exchanges. ITC has made some strong gains in a volatile market scenario that was a spillover of macroeconomic risks. But the potential of ITC has only begun and it is seen as a classic value stock to hold going forward.
On BSE, ITC shares hit a new 52-week high of ₹293.45 apiece earlier today. However, the stock corrected and closed in red at ₹286.75 apiece down by 1.73% on the exchange.
At the closing price, ITC's market cap stands at ₹3,53,369.36 crore.
Compared to its fresh 52-week high, ITC stock has gained by a whopping over 44% in a year. Meanwhile, its growth is nearly 34% so far in 2022.
In comparison to the closing price on BSE, ITC stock has jumped nearly 41% in a year, and nearly 31% so far this year.
ITC is nearing the top 10 most valued companies club. It currently holds the 11th most valued firm rank on BSE and is following Bharti Airtel who is the tenth most valued firm with a market cap of ₹3,75,819.43 crore and HDFC at ninth rank with a valuation of ₹3,99,627.10 crore.
Talking about ITC's stock performance, Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "Globally now there is a trend in favour of value stocks. ITC, a classic value stock, has been underperforming due to ESG concerns, particularly since tobacco contributes the bulk of ITC's bottom line. This underperformance which had no fundamental basis is being corrected now."
Last month, analysts at Ventura Securities in its research note said, although ITC Ltd. has been a stark underperformer over the last few years, we believe that this is set to change. Having achieved critical scale, the FMCG business which has been dragging profitability is expected to witness robust growth (16% CAGR to ₹22,729 cr) with improving margins (+290 bps to 8.6%). Increasing migration towards sustainable packaging and revenge travel post-pandemic should help bolster revenue growth and profitability of both verticals. With buoyancy in tax collections, the stress on rising cigarette taxation is diminished and should help drive cigarette volume growth. The agri-commodity business prospects have sharply improved post the Ukraine invasion and the IT vertical is expected to continue its strong double-digit revenue growth with top percentile margins.
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Further, Ventura's note said that among Nifty 50 stocks, ITC is one of the few stocks that provide a strong growth opportunity along with an attractive dividend yield of 4.19%. The market has not taken cognizance of the fact that ITC’s FY24 EBIT of ₹24,613.5 cr is expected to be more than 1.6X that of HUL (which is the 2nd most profitable listed consumer player) and equal to the combined EBIT of the next 4 players. It added, "We believe that this dominance should result in the rerating of the stock as the growth story unfolds. Another kicker for the valuation rerating is the potential demerger plan as outlined in the Dec-21 corporate communication."
Ventura has kept a buy rating on ITC with a target price of ₹350 apiece ahead.
In its annual report of FY22, ITC Chairman & Managing Director, Sanjiv Puri said, with enhanced scale and margin expansion, the FMCG Businesses are expected to make increasingly higher contributions to the Company’s profit pool, thereby setting the stage for further value enhancement opportunities.
On the cigarettes business, Puri said, "as seen in the past, stability in taxes on cigarettes enables the legal cigarette industry to claw back volumes lost to illicit trade, thereby engendering domestic demand for Indian tobaccos, while also mitigating loss of tax revenue to the Exchequer due to illicit trade." He added, "Stability in taxes is critical for addressing the interests of all the stakeholders of this industry, including the tobacco farmers, the Exchequer, and the consumers."
While respite from a further increase in taxes has provided the legal cigarette industry an opportunity to claw back volumes lost to illicit trade, the operating environment remains challenging due to elevated levels of taxation, a high share of illicit trade, and disproportionate regulatory pressures, Puri had said.
In FY22, ITC's overall gross revenue at ₹59,101.09 crore increased by 22.7%, while EBITDA increased by 22.0% to ₹18,933.66 crore. Profit After Tax stood at ₹15,057.83 crore (previous year ₹13,031.68 crore). Total Comprehensive Income for the year stood at ₹15,631.68 crore (previous year ₹13,277.93 crore). Earnings Per Share for the year stood at ₹12.22 (the previous year ₹10.59).