Brokerage firms CLSA and HSBC have upgraded ITC Ltd., the cigarettes-to-hotels conglomerate, calling the correction in the stock an attractive buying opportunity in a market that is volatile.
ITC's shares have corrected 20% from the peak of ₹499 that it hit in July 2023.
CLSA has upgraded the stock to buy with a price target of ₹468. It believes that the correction in ITC's shares offers an attractive multiple in a volatile market. Although it expects the company's cigarette volumes to remain muted, it added that premiumisation in this segment is underway.
ITC's FMCG business will gradually become a key driver for growth while the agribusiness will stabilise with value-added products, according to the brokerage, whose note also said that Quick Commerce will accelerate portfolio premiumisation.
The other upgrade has come from HSBC, who has also upgraded the stock to buy with a price target of ₹480. It believes that the correction implies an attractive valuation for its cigarette business and creates a buying opportunity even as the taxation overhang persists post the block deal.
According to Morgan Stanley, the BAT block deal clears a supply overhang that kept ITC's stock under pressure recently. The brokerage expects the stock's outperformance to resume once the stake sale is complete.
Morgan Stanley remains bullish on ITC on expectations of a moderate cigarette taxation environment, continued scaling up of its non-cigarette business and reasonable valuations.
ITC is currently trading at a price-to-earnings multiple of 22.48 times for financial year 2025.
Morgan Stanley is overweight on ITC with a price target of ₹491.
On Tuesday evening, BAT launched a book to sell a 3.5% stake in ITC in a deal valued at over ₹16,700 crore. BAT has also specified that it does not intend to bring its stake in ITC below 25%, which gives it veto rights.
BAT will utilised the proceeds from this stake sale to repurchase its shares.
The stake sale from BAT also continues the trend of MNC/foreign promoters exiting/paring stakes in Indian counterparts at elevated valuations. You can read more on that here.
ITC shares ended lower on Tuesday and are down 15% so far in 2024.
First Published: Mar 13, 2024 8:17 AM IST
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
