Stocks in News - Emkay Global maintains buy on ITC for target of Rs 270; lists key takeaways from analysts and investors meet

Brokerage firm Emkay Global remains optimistic on this stock and sees an upside of over 18 per cent. It has recommended a buy on ITC for a price target of Rs 270. It was recommended at a price of Rs 229

ITC Limited stocks fell for the fourth straight session on Wednesday

ITC Limited stocks fell for the fourth straight session on Wednesday. While, the announcement of its first-ever Analysts and Investors Meet on 9 December catapulted the stock, the steam could not sustain the course leading to more correction on Tuesday and today. The shares were trading at Rs 223.75 on the NSE around 1:25 pm and were down over 2 per cent from the previous closing price.

Brokerage firm Emkay Global remains optimistic on this stock and sees an upside of over 18 per cent. It has recommended a buy on ITC for a price target of Rs 270. It was recommended at a price of Rs 229.

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ITC was recommended previously on four occasions, this year – first time at a price of Rs 217 for a price target of Rs 265 with a 12-month view. On 18 October, the stock hits a 52-week high of Rs 265.30 and has corrected over 15 per cent as on today. The stock was also recommended on 2 June (209/265), 25 July (212/265) and 28 October (225/270) The Earnings Per Share (EPS) FY22E is seen at 11.6 while at 13.6 and 15.1 for FY23 and FY24 respectively.

Emkay’s key takeaways from Analyst and Investor Meet:

Contrary to market expectations on key announcements regarding demerger plans or bonus, the company focused on growth and key drivers. Key highlights of the outcome:

A- Cigarettes

Management plans to maximise cigarette potential within the tobacco basket. Cigarette consumption stands at just 8 per cent of tobacco consumed. The cigarette portfolio is future-ready with in-house technology benefits and the launch of more variants/formats.
The portfolio offerings are up 2X in the last eight years, offering a wide portfolio at multiple price points. New launches contribute 11% of overall volumes.
It highlighted better recovery trends in cigarettes after the second Covid-19 wave and has gained 100bps in market share.
Commentary indicated improvement in mix, with stability in the tax regime and constant innovations, complemented by strong last-mile execution.

B- FMCG

Plans to fortify the core and leverage adjacencies. Core brands have displayed strong, ahead-of-industry growth in the last 10 years.
Aashirvaad Atta grew 5times with an 18 per cent CAGR; cream biscuits saw a 16 per cent CAGR; Bingo bridges segment reported a 25 per cent CAGR while Yippe Noodles posted a 42 per cent CAGR.

C- Personal Care

Focus to be on future-facing categories and drive premiumisation with innovations driving affordability in premium categories.
Savlon and Nimyle have seen strong success after the acquisition (up 14x and 5x, respectively).

D- ITC expects margin improvement to continue over the longer term with industry-leading margins across categories, led by manufacturing cost efficiencies, mix improvement and accretive acquisitions.

E- Total reach up 1.2X (+6.6mn outlets), with the direct reach going up 1.4X (+2.5mn outlets) and the stockist network growing by 6X in the last five years.

F- The e-commerce channel contributes 7 per cent of overall sales and 14 per cent contribution in personal care.

G- Hotel business segment yet to recover and currently at 40-50 per cent of pre-Covid levels, while the leisure segment is seeing stronger growth.

H- The focus is on moving toward an asset-light model by increasing managed rooms from 25% to 45 per cent in five years.

I- Management sees tremendous potential in ITC Infotech and showed interest in exploring inorganic opportunities and a separate listing at an appropriate time.

J- In the agri business, ITC MAARS will continue to see more investment, supporting the eChoupal initiative and creating a robust digital eco-system to deliver customised solutions to farmers.

K- Caveats - High inflationary pressures likely to impact the margin trajectory in the near term.

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