ICICI Securities says it’s time to 'add’ ITC stock to your portfolio

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Brokerage firm ICICI Securities has recommended that its clients add ITC to their portfolio, saying that micro and macro factors are turning in the favour of the FMCG major.

Retaining the “add” rating on the stock, the brokerage firm has kept the price target of Rs 250, implying a gain of 14 percent from current levels.

The brokerage firm's optimism comes at a time when the stock has been hammered more than 13 percent in the last three months after hitting a 52-week high of Rs 265.30 in October.

“We believe the current environment is conducive to price hikes and there is potential for ITC to gain shares in the category,” ICICI Securities’ analysts said in a note released on January 19.

ITC may see potential market share gains in its cigarette business, improve cost savings through recast of its supply chain and continued scaling and profitability improvement of its non-cigarette FMCG operations, it said.

The brokerage firm is concerned that investors may be too pessimistic about the outcome of the panel set up by the government to look into tobacco taxes.

Analysts widely expect the government to announce a proposal to raise taxes on cigarettes in the upcoming Union Budget 2022-23, as raising levies on other tobacco products may prove difficult in an election year.

Irrespective of a tax increase, ICICI Securities expects ITC to move ahead with selective price increases to capitalise on the current general inflationary environment.

On the non-cigarette FMCG business, too, ICICI Securities holds a favourable view as it believes “ITC’s FMCG scale-up has ingredients to drive a long-term success story”. Further, the hotel business, a drag on the company during the pandemic, is looking up.

The reopening of the economy and a mild third wave is raising hope that the hotel business will see a strong turnaround in the next financial year.

“We note that in the past, ITC used to enjoy segmental margins of greater than 40 percent for hotels,” the note said.

At 12.20 pm, the stock was trading at Rs 219.75, down Rs 1, or .45 percent, from the previous day’s close on the National Stock Exchange, against a 0.8 percent drop in the Nifty.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.