Established over a century ago, ITC is now a diversified company interested in fast-moving consumer goods, stationery, packaging, agriculture, and hospitality sectors, among others. That said, the bulk of its revenue comes from selling cigarettes. ITC is the largest cigarette manufacturer and seller in the country.
The ITC share price isover 80% in cigarettes. It sells its products under brands like Insignia, India Kings, Classic, Gold Flake, American Club, etc. The non-cigarette FMCG business is also growing decently, and the company is trying hard to create a space for itself. Many brands like Aashirvad Atta, Bingo, Sunfeast, Classmate, Yippee, Engage, and Mangaldeep are the top brands in their respective segments.
Agri business and packaging businesses are its biggest revenue contributors. Asset-heavy hotel business contributes the least to ITC’s total revenue. That said, it is the second-largest hotel chain in India. The company has more than 200 manufacturing facilities in India. It has a distribution reach of over 60 lakh retail outlets across various trade channels. The ITC share has also seen buying in recent months, especially after the Russian invasion of Ukraine created problems for food security worldwide.
This improved the outlook of the Agribusiness of the company, which is involved in trading in agricultural produce, including tobacco. As of June 2022, the ITC share price BSE is up by 20% in the current calendar year. It is the best performer among FMCG stocks and has shrugged off years of trading in a narrow zone. Can they continue the rally? If we go by ICICIdirect, the answer to this question is yes.
ICICI direct analysis
In its recent commentary (May 2022), the broker advised investors to BUY the stock with a target price of Rs. 310 in the next 12 months. This means a potential upside of 17% from prevailing prices in June 2022.Analysts associated with ICICIdirect said they expect cigarette volumes, price growth in the FMCG business, and strong Agri exports to drive revenues for the company in future.
We value the stock on the sum of the parts basis valuing the cigarette business at 15 times FY24 earnings and the FMCG business at six times FY24 sales. According to them, key triggers for future price performance could be:
-Stable taxation on cigarettes is expected to drive volumes in the future. Moreover, the company has been gaining market share in cigarettes for the last year through new premium products & aggrieve trade promotions.
-FMCG business has been growing at a sustained pace with continuous improvement in margins in the last five years. The opportunity size of the existing foods portfolio is extensive, analysts say, adding that given Agri commodities constitute a larger part of raw material, input cost pressures are relatively less for the company
-The company has been utilizing export opportunities in wheat, rice, and tobacco for the last year. The recent spurt in global Agri prices is likely to aid growth.
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