Hotels-to-FMCG-to agri-business conglomerate ITC recently addressed analysts, highlighting growth in its FMCG division. During the analyst meet on December 12, the company said it has expanded at a compounded annual growth rate of 14% in the last three years.
The firm said its FMCG products are now present in three of four households in India and its Aashirvaad brand has become an ₹8,000 crore product in terms of consumer spends.
With a special focus on FMCG, the company said it is "one of the fastest growing FMCG Businesses in India" with rapid scale in revenues, which is largely "driven by brands developed in-house."
Following the analysts’ meeting, global brokerage HSBC raised its target price on ITC shares to ₹490, which means an upside of over 7% from the December 13 closing price.
HSBC is of the view that ITC has built a winning business in other FMCG, which is gaining scale and consistently delivering margin expansion. It added that other businesses such as agri and paperboard are shaping up for premiumisation.
Hotels are also delivering strong returns, the brokerage noted.
A common view among analysts is that except for taxation overhang on cigarettes, which limit upside, the company looks formidable to them.
Elara Securities, meanwhile, with an 'accumulate' rating has set a target of ₹516 on the stock. It sees huge room for growth and profitability in other FMCG businesses and said that the non-cigarette business remains a key driver.
This came against the backdrop of the analyst meeting in which the ITC management emphasised on a strategy which identified several growth drivers in the non-cigarettes segment. This segment has seen a 2.5 times rise in revenue and 3.2 times increase in bottom line in the past decade, the management said.
ITC said it employs a three-fold growth framework
“In the cigarettes business, management remains committed to its strategy of a tier-wise product portfolio, innovative distinct offerings, and effective last-mile execution. This approach aims to seize significant growth potential in the cigarettes market, which constitutes 9% of total tobacco consumption, reclaim market share from illicit trade (one-third of legal cigarettes), and bolster its position among peers. Management believes that in a stable tax environment ITC will continue to claw back share from the illicit market,” Elara Securities pointed out.
Morgan Stanley has an overweight call on the stock with a target price of ₹493. It is of the view that analyst meet takeaways show near-term demand trends are similar to the second quarter, with urban growth leading rural growth.
High prevalence of illicit trade is likely to keep the cigarette tax increases moderate, the brokerage added.
It also noted that FMCG's focus on driving growth and improving margins (80-100 bps/year) were reiterated by the company. It sees new value added opportunities in agri business, especially nicotine and derivatives.
The new food tech business was introduced to build digital-first fresh food brands and business, the brokerage added.
Jefferies has a buy call on the company’s stock with the target price set at ₹452. It pointed to ITC’s focus on making itself future ready through agility, innovation, investments and cost optimisation.
According to the brokerage, rural demand has bottomed out and FMCG business is well-positioned to capture the upturn.
CLSA, on the other hand, has set the target price at ₹494 with an outperform call. It believes ITC’s cigarette growth is likely to consolidate in the near-term on a high base.
Its medium-term outlook is for positive volumes if taxation is stable, it said.
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