Should you buy ITC shares after a strong Q1 performance in the business vertical?

“The impact of stable taxation as well as action by enforcement agencies indicate early signs of share gains by the legal cigarette industry from illegal trade, a major positive from the release. The 1QFY23 result was strong with exceptional performance in Hotels and Paperboard, Also marginal bets in cigarettes – FMCG faced margin pressure,” global brokerage Jefferies said while retaining its buy tag ITC share with a revised target price of 360 each (from 305 East).

The hotel was a star performer in 1Q with the highest quarterly earnings and Ebitda in a decade. While YoY comps benefited from a lower base, 3Y revenue CAGR was also healthy at 12%.

“We have been constructive on the stock, led by: a) better-than-expected demand recovery and a healthy margin outlook in cigarettes, b) strong sales momentum in the FMCG business, c) less drag from the hotel business, and d) the recent Better capital allocation over the years,” said domestic brokerage Motilal Oswa.

The stock has performed well, gaining nearly 17% since the brokerage upgraded to buy in June 2022. It sees scope for further growth based on a healthy earnings outlook and has maintained its buy rating on the FMCG stock with a target price. 355 per share.

“A stable tax environment for cigarettes in recent years has allowed ITC to check price hikes to avoid demand disruptions. We expect this trend to continue and result in improved cigarette volumes and earnings visibility in the medium term.”

Commenting on the outlook, ITC said that the pace of inflation remains a key monitorable, with prospects of a favorable monsoon and recent moderation in prices of key commodities as well as proactive interventions by the government and RBI continuing economic recovery and a pickup. good for. – Increase in consumption expenditure.

The views and recommendations given above are those of individual analysts or broking companies and not of Mint.

first article