Macquarie upgrades ITC to Outperform, raises target on improving cigarette volume trends

Global brokerage house Macquarie has upgraded ITC to Outperform from Neutral rating and also raised target price to Rs 367 from Rs 304, implying potential upside of 24 percent.

The major reason behind its upgrade is the potential improvement in cigarette business which contributed more than 40 percent to total revenue.

"We see improving cigarette volume trends based on channel checks and expect higher visibility of margin improvement in FMCG business," Macquarie said.

He believes potential double-digit cigarette EBIT growth will lead to valuation re-rating.

ITC delivered a healthy performance during the quarter amidst subdued demand conditions and continuing pressure on the legal cigarette industry. On a comparable basis, gross sales value (net of rebates/discounts) for April-June quarter stood at Rs 18,171.66 crore, representing a growth of 13.5 percent driven mainly by the agribusiness, FMCG-Others and FMCG-cigarettes Segments.

Profit after tax for the quarter at Rs 2,818.68 crore grew by 10.1 percent, respectively.

At 13:28 hours IST, the stock price was quoting at Rs 295.40, down Rs 1.30, or 0.44 percent on the BSE. In last one month, the stock corrected 5 percent but in last three months, it rallied more than 13 percent.