ITC shares hit 3-year high post Q4; should you buy, hold, or sell?

Shares of FMCG major ITC surged nearly 5% to hit a multi-year high in opening trade on Thursday, in sharp contrast to the highly bearish broader market trend, as investors cheered its March quarter earnings report, which beats Street estimates. ITC was the only gainer in the 30-share Sensex pack, while all other index heavyweights were reeling under selling stress. The BSE benchmark was trading 970 points lower at 53,236 levels, led by Tech Mahindra, Infosys, HCL Technologies, Wipro and IndusInd Bank, which fell up to 4%.

ITC shares opened lower at ₹264.20 against the previous closing price of ₹266.50 on the BSE, in sync with the broader market. However, the stock rebounded strongly to hit a 3-year high of ₹279.15, driven by strong volume. As many as 13.5 lakh shares worth ₹37 crore changed hands in the first hour of trade, as compared to the two-week average volume of 7.82 lakh stocks. The market capitalisation of the large cap stock climbed to ₹3.38 lakh crore.

ITC's share price has underperformed the FMCG index with a negative return of 6.8% in the last five years, from ₹286 in May 2017 to ₹267 in May 2022. However, the stock traded higher than its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages. The stock has risen 32% in the last one year, 19% over the six-month period, and 5% in the past one month. On the year-to-date basis, the stock has gained 25%, while it has risen 6% in a week.

Analysts see 16% upside for ITC

After the recent rally, ITC share seems to be in no mood to lose its sheen, with analysts expecting a potential upside of up to 16% from current market price. Domestic brokerage firm YES Securities has recommended a 'BUY' rating on ITC shares, citing inexpensive valuations and a strong dividend yield. The agency has given a target price of ₹308, an upside of 15.4% from Thursday’s closing price of ₹267 on the BSE.

The agency in its report says the Kolkata-based business conglomerate delivered a solid performance with another quarter of 9% volume-led revenue growth which surpassed pre-Covid levels. As per the report, the company seems to be on a growth trajectory with a steady rise of 12% in the FMCG business despite a high base with sequential improvement in margins. Meanwhile, hotels business is turning around and both the agri (29% growth) and paperboards (32% growth) businesses showing above expected growth on a high base.

“We believe this sort of consistency across segments with some visible relief on the cigarette taxation front can drive a further re-rating on the valuations front. We expect normalised growth in cigarette volumes going forward driven by stability in taxes, progressive claw back of illicit industry and better growth rates and margins in FMCG, in addition to margin improvement in cigarettes with positive operating leverage and a better mix,” the report noted.

ICICI Direct Research has given a “BUY” call with a target price of ₹301, a potential upside of 16% from current levels with a time horizon of 12 months. It expects cigarette volumes, price growth in FMCG business and strong agri exports to drive revenues for the company in the future.

Global brokerage firm JPMorgan has upgraded ITC shares to overweight with a price target of ₹305, citing strong cash flows and high dividend yield.

ITC, the biggest cigarette and second largest FMCG company in India, has reported a 11.8% year-on-year growth in its net profit at ₹4,191 crore for the fourth quarter ended March 31, 2022. The revenue from operations rose 15% YoY to ₹17,754 crore in Q4FY22, led by FMCG and cigarette business, steady performance from agri and paper business and continued recovery in hotels business. The board of the company also recommended a final dividend of ₹6.25 for the financial year ended 31 March, 2022, subject to requisite approval.