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    Fundamental Radar: ITC is a long-term buy after 50% rally in 2022, says Sneha Poddar

    Synopsis

    “We have again turned positive on ITC led by a: a) better-than-expected demand recovery and a healthy margin outlook in Cigarettes, b) healthy sales momentum in the FMCG business, c) smart recovery from the Hotels business,” Sneha Poddar, AVP, Fundamental Research, Motilal Oswal Financial Services, said.

    Fundamental Radar: ITC is a long-term buy after 50% rally in 2022, says Sneha Poddar
    ITC has rallied over 50% so far in 2022 to hit a fresh 52-week high in November, but the rally may not be over yet as demand recovery, margin outlook in the cigarette business, as well as healthy sales in FMCG business, will keep the momentum going.

    The S&P BSE Sensex stock rose from Rs 218 recorded on 31 December 2022 to Rs 341 on November 18, 2022, which translates into an upside of 56%.

    ITC’s financial performance over the last 10 years has been a story of two halves. It performed strongly in the first half of the decade, with a 16-22% CAGR in revenue and net profit (PAT). However, in the subsequent five years, the growth declined to one-third.

    Long-term traders can look to accumulate the stock now or on dips for a possible target of Rs 400 in the next 12 months, suggest experts. A strong demand environment as well as a healthy margin outlook across verticals will keep the momentum going for ITC, they say.

    “We have again turned positive on ITC led by a: a) better-than-expected demand recovery and a healthy margin outlook in Cigarettes, b) healthy sales momentum in the FMCG business, c) smart recovery from the Hotels business,” Sneha Poddar, AVP, Fundamental Research, Motilal Oswal Financial Services, said.

    A stable tax environment for cigarettes in recent years has allowed ITC to calibrate price increases and we expect this trend to continue, which should drive earnings visibility over the medium term.

    “Healthy sales momentum in the FMCG business is being driven by improved reach, enhanced penetration and better last mile execution. Market/outlet coverage stood at ~2.0x/1.3x of pre-pandemic levels,” she said.

    “Hotels segment is witnessing ARR and occupancy rates ahead of pre-pandemic levels driven by retail (packages), leisure, weddings, and MICE segments. This has led to EBIT turned to profit from 3QFY22,” added Poddar.

    Valuations of global tobacco peers have been restored to their pre-pandemic levels (January 2019), and while ITC’s multiples have also been restored, it still trades at a 10% discount to its January 2019 valuations.

    “Thus, we recommend a buy with a target of Rs 400,” recommends Poddar.

    (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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