Brokerage firm Nomura believes that the Union Budget, which will be presented on February 1 will be a pivotal one for ITC Ltd. as the announcements made there can trigger a re-rating or a de-rating in the stock.
The brokerage initiated coverage on the stock with a neutral rating and a price target of Rs 360, implying a potential upside of 8.5 percent. It cited a potential hike in taxes on cigarettes in the upcoming budget and the normalisation of growth in the FMCG business as the factors behind its neutral stance.
Nomura also warned investors to tread with caution on the stock amidst rising risks for the Cigarette segment. Although the contribution of the cigarette business has declined significantly for ITC over the years, it still comprises of a third of the company's overall topline.
ITC's margin improvement is also likely to be gradual and contained while the overall business may be subdued, according to Nomura, which has also assigned a low probability to the potential divestment of the FMCG business.
Last month, Antique Stock Broking stated that a strong performance in the December quarter would support ITC's stock price. It predicts double-digit growth in cigarettes volumes, paper and FMCG businesses and an encouraging recovery in the hotels business.
Shares of ITC ended 0.7 percent lower at Rs 329.50. The stock has gained close to 50 percent over the last 12 months.
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