Analysts bullish on ITC, see stock rising 14-40% on favourable risk-reward post Q2 numbers

Morgan Stanley, which has overweight call on the stock with a target price at Rs 320, said the stable cigarette volume environment may allow company for calibrated price hikes.

The reported cigarette volume growth stood at 6 percent against its 5 percent estimate and adjusted cigarette EBIT growth of 10 percent ahead of its 9.3 percent estimate, the brokerage house said.

Cigarettes business, which contributed 45 percent to total revenue, has registered a 10.4 percent increase at Rs 5,026 crore with its reported EBIT (earnings before interest and tax) rising 8.7 percent, but margin declining 10 bps compared to same period last fiscal.

Cigarette segment has delivered second consecutive quarter of positive volume growth, said ICICI Direct Research which believes the company should be able to end the year at a full year volume growth of 3-4 percent.

The research house continued to remain positive on the company given robust and encouraging growth numbers coming from its core segments.

The cigarette-hotel-to-FMCG major ITC has reported a 11.9 percent on year growth in second quarter profit to Rs 2,954.67 crore, driven by cigarettes, FMCG and paper segments.

Revenue from operations during the quarter grew by 7.3 percent year-on-year to Rs 11,069 crore with cigarette, hotels and agri segments growing in double-digit.

Overall company's EBITDA (earnings before interest, tax, depreciation and amortisation) increased 11.8 percent to Rs 4,206 crore and margin expanded by 150 bps to 38 percent compared to year-ago.

ITC said its FMCG business reported revenue at Rs 8,186 crore, a growth of 11.3 percent over corresponding quarter last year. Paper segment revenue, which contributed nearly 13 percent to total business, increased 8.8 percent year-on-year to Rs 1,424 crore and its EBIT grew by 13.4 percent with margin rising 90 bps in Q2.

BNP Paribas expects double-digit EBIT growth to continue. ITC is its top FMCG pick as the stock is trading below its 5-year average 1-year forward PE and other consumer stocks in its coverage are trading between average & +1 standard deviation.

It believes cigarette operating profit growth is set to improve. It has a buy call on the stock with a target price of Rs 347 per share.

Macquarie has maintained its outperform rating on the stock with a target price at Rs 367 as it feels Q2 saw strong recovery in cigarette volume & EBIT growth and FMCG business continued on significantly improved profitability track.

While having a buy call with a target price of Rs 360 per share, Jefferies said cigarettes growth tad below its estimates and others showed positive trend, but it remained positive on ITC given improving business performance in FY19 and favourable risk-reward at current levels.

Stock remains a good defensive play amidst volatile markets, it believes.

IDFC Securities said Q2 results were a mixed bag but the stock is at a 35-40 percent discount to the average of FMCG coverage universe and hence believes risk reward is favourable. It has maintained outperform rating on the stock with a target price at Rs 322 per share.

CLSA has retained its Buy call on ITC with a target price at Rs 390 per share. Update on disaster cess is the key event to watch in the near term, it feels.

At 10:28 hours IST, the stock was quoting at Rs 281.20, up Rs 0.55, or 0.20 percent on the BSE.