Shares of FMCG major ITC rose nearly 2% in intraday trade to hit fresh record high on the Bombay Stock Exchange (BSE) on Wednesday, in an otherwise weak broader market. Extending its gaining streak for the third straight session, the share price of Tobacco-to-hotels major attained a new peak of ₹356.20 in intraday trade, breaching its previous high of ₹354 touched on October 21, 2022. The largecap stock has rallied 72% in the last eight months, rebounding from its 52-week low of ₹207 touched on February 24, 2022.

On Wednesday, ITC share price opened marginally lower at ₹348 against the previous closing price of ₹349.4 on the BSE. Paring opening losses, the FMCG heavyweight rose as much as 1.94% to ₹356.20 amid strong volume trade. On the volume front, 10.25 lakh shares changed hands over the counter as against the two-week average volume of 9.63 lakh stocks. The market capitalisation climbed to 4.39 lakh crore.

Finally, ITC shares settled the day’s trade at ₹354.40, up 1.43% on the BSE, while the 30-share Sensex closed 215 points lower at 60,906 levels.

The largecap stock has rallied 62% in the calendar year 2022, compared to 1.4% rise in the BSE benchmark Sensex. It has given a return of 59% in the last one year, 36% in past six months, and 9% in a month.

Key factors fuelling the rally

The recent rally in ITC shares can be attributed to strong quarterly earnings and “buy” recommendations by many brokerage houses.

For the July-September quarter of the current fiscal, ITC reported a 24% year-on-year growth in its consolidated net profit at ₹4,619.77 crore on the back of strong demand for its cigarettes and snacks. The cigarette-to-hotel conglomerate saw its revenue from operations jumping by 25% to ₹18,608 crore, from ₹14,844 crore in the same quarter last year.

Segment wise, revenue from cigarette climbed 23.3% YoY to ₹6,953.80 crore, which contributed to more than 80% of its net profit and about 45% of its revenue. The revenue from the non-cigarette fast-moving consumer goods (FMCG) business grew 21% to ₹4,885 crore during the quarter under review. Among others, the hotel business’ revenue surged 82% YoY to ₹536 crore, while agricultural business, the third major contributor to revenue, posted a growth of 44%  to ₹3,997 crore.

Post Q2 earnings, domestic brokerage Prabhudas Lilladher maintained “accumulate” rating to ITC shares and raised the target price to ₹365, from ₹340 estimated earlier. The agency in its report said the near term outlook remains positive given rise in cigarette volume traction in a stable tax regime and strong pricing and benefits of back ward integration in paper and paper board. Besides, structural recovery in hotel business and sustained growth across segments in FMCG also augur well for the company, it said.

JM Financial Institutional Securities assigned “buy” rating with a price target of ₹395, saying that momentum in all the business segments continued to move in the same (right) direction in the September quarter. “The stock has gained strong momentum in recent months (+60% YTD) but still offers a 3.7% dividend yield at CMP. We expect Sep-Q earnings to help support ITC’s re-rating,” it said in its report post Q2 earnings.

Analysts at ICICI Securities maintained “add” rating on ITC shares, citing that performance has been good across segments. The brokerage house increases the company’s earnings estimates by around 5%-4% forFY23E/24E. It maintain add rating with a DCF-based revised target price of ₹400, from ₹350 projected earlier. “At our target price, the stock will trade at 24x P/E multiple Mar’24E. The key downside risk is tax hikes much ahead of inflation leading to volume pressure (on cigarettes) as price elasticity is still unfavourable,” the agency said in a report dated October 21.

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