ITC surges 8%, hits seven-month high; inches towards 52-week high

Shares of ITC hit a seven-month high of Rs 233.30, on rallying 8 per cent on the BSE in intra-day trade on Thursday on expectation of an improvement in its business. The stock is trading at its highest level since February 2021. It had touched a 52-week high of Rs 239.15 on February 9, 2021.

The counter has seen a significant trading activity, with over five-fold jump in trading volume on the BSE on Thursday. A combined 72.1 million equity shares changed hands on the NSE and BSE till 10:05 am. In comparison, the S&P BSE Sensex was up 0.09 per cent at 58,775 levels.

ITC is the biggest cigarettes & second largest fast moving consumer goods (FMCG) company in India with 78 per cent market share in cigarettes and presence in staples, biscuits, noodles, snacks, chocolate, dairy & personal care products. The company is also present in paperboard, printing & packaging business with revenue of Rs 4,549 crore and agri business with Rs 8,001 crore (FY21).

"The stock was lagging behind in terms of performance, while several other stocks have now turned expensive, this seems to be one of cheaper stock available. The stock is now doing some catch-up, and single handedly has supported the Nifty today, contributing 30-odd points," says A Prabhakar, head of Research, IDBI Capital.

Despite Thursday's rally, the stock has underperformed the market by gaining 28 per cent in the past one year, as compared to 50 per cent surged in the S&P BSE Sensex. In past three years, ITC's share price has dipped 25 per cent, against 55 per cent rally in the benchmark index.

Analyst at ICICI Securities believes the cigarettes business will fully recover with the aggressive vaccination drive & reduction in Covid-19 cases. “We also believe elevated commodity prices would cool off in the next two to three quarters with considerable margin improvement in the FMCG business set to continue. However, investor perception of cigarettes business and its long term prospects has been one of the biggest drags for the stock price performance in the last five years,” the brokerage firm said in June quarter result update. The brokerage firm has ‘hold’ rating on the stock with target price of Rs 240 per share.

Lower lockdown impact and the faster recovery trends seen in cigarettes are positives and improve earnings growth visibility. In addition to the rising profitability of FMCG, improvement in IT is notable, and can offer incremental upsides, analyst at Emkay Global Financial Services said. The brokerage firm maintains ‘buy’ rating on the stock with target price of Rs 270 per share.

Manehile, Chirag Shah and Nitin Gupta, analysts at CLSA expect the company's FMCG business to firmly be on path for a profitable scale-up and expect this vertical to deliver over 26 per cent compounded annual growth (CAGR) in earnings before interest, taxes, depreciation and amortisation (Ebitda) over FY21-24 on the back of industry tailwinds, margin levers and improving asset utilisation.

According to grapevine, the market is also buzz with renewed optimism among investors, in the backdrop of large investors questing top management like the ZEE group case.