ITC share price edged higher intraday on June 16 after Motilal Oswal upgraded the stock to buy from neutral.
The domestic research and broking firm has a target of Rs 335 per share, an upside of 27 percent.
According to Motilal Oswal, better than expected demand recovery, healthy margin outlook on cigarettes, sales momentum in the FMCG business, lower drag from the hotels business, and better capital allocation in recent years have led to the upgrade.
"A stable tax environment for cigarettes in recent years has allowed ITC to calibrate price increases to avoid a disruption in demand. We expect this trend to continue and should result in improved cigarette volumes and earnings visibility over the medium term. The breadth of ITC’s FMCG product portfolio gives it an advantage in a rapidly changing demand environment. Its leadership position in some categories gives it pricing power to offset incremental input cost pressures in other categories, where pricing power is not as strong," it said.
"The resilient nature of its core business, amid an uncertain environment in the sector, and 4-5% dividend yield make the firm a good defensive bet in the ongoing volatile interest rate environment. Earnings CAGR (compound annual growth rate) at the profit before tax level stood at 5% over FY17-22. We expect ITC to post 15% earnings CAGR over FY22-24," it added.
Motilal Oswal values ITC at 21x FY24 earnings per share, a 65% premium to global peer average. It believes the premium multiples are justified, given its strong visibility over the medium term and the defensive nature of its business, especially in a volatile macro environment.
At 10:10 am, the stock was trading at Rs 265.30, up Rs 1.80, or 0.68 percent. It has touched an intraday high of Rs 267.85 and an intraday low of Rs 264.75.