ITC up 17% in a month; Edelweiss Research sees 80% upside, lists fundamental and technical view

Shares of ITC have jumped around 17 per cent in the last one month. Brokerage firm Edelweiss Research expects the surge in this stock to continue with an 80 per cent upside open for the scrip. 

On technical front, a strong up-move of prices on the ratio chart of ITC/FMCG suggests a strong outperformance by the stock in the sector. It also suggests a base formation hinting towards the start of a strong outperformance by the stock, the brokerage said. 

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Edelweiss Research maintained a Buy rating on the stock and sets a target price of Rs 450 per share, implying an upside of 80 per cent. The stock on Wednesday gained nearly 1.5 per cent to Rs 253.25 apiece on the BSE intraday, inching towards its 52-week high of Rs 265.3 apiece hit on October 18, 2021. 

Investment Rationale 

Considering how commodity prices moved up in the last two years, the ESG investing philosophy and its long-term benefits are uncertain, the report noted. ITC is among the ESG negative companies that have seen significant multiple deratings despite strong cash flow, scaling up of the FMCG business, rationalisation in the retail business and revival of the hotels/paperboard businesses, it further said.

However, the brokerage is of the view that the volume in cigarettes will likely revive at a CAGR of 5% during FY22–24E as against a CAGR of (-)1% during FY11–21. 

Moreover, the FMCG’s EBITDA margin will likely scale up to higher single digits, the report further said. The hotel, paperboard and agri-commodities businesses is set to revive, the brokerage report said. This will lead to an earnings CAGR of 12% in FY22–24E against a mere 7% in the last five years.

"We expect change in investment philosophy (ESG-related) and EPS CAGR of 12% to lead multiple re-ratings from 16x currently to 30x for FY24E earnings," Edelweiss Research said in its report.