ITC share price may surge 20%: Margins to improve, changing consumer behaviour to drive demand

Sensex, Nifty erase intra-day gains to end in red; is market trend turning negative now?

S&P BSE closed the day at 51,941, while the Nifty ended down at 15,635, after having reached an all-time high of 15,800 earlier in the day.

All segments of ITC saw strong on-year growth in revenue during the January-March quarter, except hotels. (Image: REUTERS)

ITC reported a strong uptick in revenue, across segments during the January-March quarter as demand recovery aided the topline performance. The performance of the FMCG-to-hospitality is expected to get better going forward, improving margins of the company, domestic brokerage firm Geojit Financial Services said. “With constant focus on innovation and improving product mix, ITC is well-placed to capture demand across segments,” the brokerage firm said while maintaining a ‘Buy’ rating on the stock. Currently, ITC trades at Rs 210 per share, up 1.6% on Thursday.

All segments of ITC saw strong on-year growth in revenue during the January-March quarter, except hotels. Standalone revenue was up 24.1% from the previous year to Rs 14,023 crore on account of robust recovery across all the segments boosted by increased demand for discretionary products, analysts at Geojit Financial Services said. 

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Changing consumer preferences to help FMCG biz

Going forward, the brokerage firm expects ITC’s FMCG business to continue witnessing the growth momentum. “Integration of Sunrise Foods should help ITC focus on value-adding niche products which further enables margin expansion for this segment,” the report said.

The FMCG business of ITC, according to analysts at Gejoit Financial services, will also benefit from the changing consumer buying preferences from private labels to branded ones. “This shift in behaviour could largely be attributed to increased concerns over hygiene and safety in the current pandemic scenario. ITC is well-positioned to benefit from this opportunity with adequate inventory levels, coupled with rapid expansion on outlet and stockists front to capture demand going forward,” they added.

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The report said that consumer tech investments were driven by accelerated growth in digital channels and spike in user adoption of on-demand and at-home cross-tech services.

Over 20% upside potential

So far this year, ITC’s share price has traded flat, hovering around Rs 212 levels. “Steady topline growth along with improved margins going forward should help reduce its operational leverage, further boosted by its ability to implement structural changes in its value chain,” the report said. Geojit Financial Services has a target price of Rs 256 per share on ITC, translating to more than 20% upside from current levels.

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Private equity investments hit record $62.2 billion in 2020: Bain-IVCA Report

“Overall, the pandemic period saw a shift in the type of deals done, with investors focusing on alternative equity investment strategies,” analysts said in the report.