Analysts said the maker of Bingo chips and Gold Flake cigarettes has become a big draw among investors because it is less affected by input cost inflation, has a high dividend yield, consumer business growth, and a recovering hotel business along with strong growth prospects in the cigarette business. , which is its mainstay.
Gautam Dugad, Head of Research – Institutional Equities, said:
. “The recovery in cigarette trading continues and stocks are trading at a significant discount to the sector despite strong payments and free cash flow generation.”
Motilal Oswal Financial, which recently upgraded the stock to a buy target of ₹335, said the stock is still trading at a 27% discount on January 2019 valuations of 25.4 times the one-year forward earnings per share.
ITC was a flood of jokes on Dalal Street until last year due to the poor performance of the share price despite the rumbling bullish trend. While the company’s earnings growth was in line with expectations, the stock’s rally was capped in part by concerns that foreign funds, increasingly focused on ESG or the environment, social investment and governance, will shy away from it because of its cigarette business. Some investors blamed the company for misallocation of capital, making the stock one of members’ favorite targets on social media.
Analysts said there is less focus on ESG on the sidelines now, as investors look to companies that can grow amid rising inflation.
“Fiscal year 23 will be a good year for ITC. Cigarettes should do reasonably well and see double-digit earnings growth,” said Abnesh Roy, CEO, ITC. “There is safety because it is less affected by commodity inflation. You should see returns of 15% within a year,” Roy said.
Daggad expects ITC’s earnings growth to be 14% on a compound basis in the next two years versus 5% compound growth in the past five years.
In the March quarter, ITC reported an 11.8% rise in standalone profit for the March quarter at Rs.4,190.96 crore while revenue from operations grew by 16% to Rs.16,426 crore.