Analyst Firms Bullish on ITC, Revises Target Price to RS 565, Citing Strong Long-term Upside Potential

Post the ITC demerger announcement, despite the immediate drop in share price several analyst firms have maintained a positive outlook on the company due to the unlocking of value, sharper capital allocation and huge potential for the company's diverse businesses.

Broking and investment firm JM Financial has maintained a positive sentiment on ITC with a price target of Rs 565 as it foresees huge potential in the FMCG businesses of the company which will get unlocked in the years to come.

Particularly noteworthy is the FMCG business's commendable achievement of reaching a double-digit margin, signifying its robust financial performance.

Also, the well-balanced demerger arrangement will enable sharper and more effective capital allocation as the Hotel entity is set to manage its own capital requirements for growth. At present, despite contributing to less than 5 per cent of the overall sales and profit, the Hotel business utilizes a significant 20 per cent of the capital.

The proposed ITC demerger arrangement, with the company retaining 40 per cent ownership of the demerged Hotel Business entity and the remaining 60 per cent to be held by ITC shareholders, is the best possible structure to ensure synergies and stability for the new entity.

By maintaining a substantial stake in the demerged Hotel Business, ITC can continue to benefit from any potential upside while allowing the entity to operate with increased autonomy.

Adding to the positive outlook on ITC, analyst firm Nuvuma has reiterated a "buy" recommendation on the company's shares. They have revised their Sum of the Parts (SoTP)-based valuation from the previous Rs 500 to an upgraded Rs 560. This revised individual valuation of different segments within ITC indicates Nuvuma's confidence in the conglomerate’s potential for further growth and value creation.

Nuvuma's positive outlook for ITC extends takes into account other favourable factors that are expected to drive the company's growth in the future. Firstly, Nuvuma anticipates that legal cigarette players, including ITC, will likely gain market share from illegal players due to a nominal tax hike in the union budget for FY24, followed by two consecutive years of no tax hikes.

Secondly, within the FMCG business, Nuvuma foresees ITC making substantial market share gains across various product categories due to the company's consistent efforts in expanding its portfolio and enhancing its distribution network.

Thirdly, Nuvuma highlights the positive trajectory of EBITDA margin expansion for ITC. As the company continues to optimize its operations and capitalize on various growth opportunities, it is expected to achieve improved operating margins, reflecting increased efficiency and profitability.