ITC Limited stocks fell for the fourth straight session on Wednesday. While, the announcement of its first-ever Analysts and Investors Meet on 9 December catapulted the stock, the steam could not sustain the course leading to more correction on Tuesday and today. The shares were trading at Rs 223.75 on the NSE around 1:25 pm and were down over 2 per cent from the previous closing price.  

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Brokerage firm Emkay Global remains optimistic on this stock and sees an upside of over 18 per cent. It has recommended a buy on ITC for a price target of Rs 270. It was recommended at a price of Rs 229.  

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ITC was recommended previously on four occasions, this year – first time at a price of Rs 217 for a price target of Rs 265 with a 12-month view. On 18 October, the stock hits a 52-week high of Rs 265.30 and has corrected over 15 per cent as on today. The stock was also recommended on 2 June (209/265), 25 July (212/265) and 28 October (225/270) The Earnings Per Share (EPS) FY22E is seen at 11.6 while at 13.6 and 15.1 for FY23 and FY24 respectively. 

Emkay’s key takeaways from Analyst and Investor Meet:  

Contrary to market expectations on key announcements regarding demerger plans or bonus, the company focused on growth and key drivers. Key highlights of the outcome:  

A- Cigarettes 

  1. Management plans to maximise cigarette potential within the tobacco basket. Cigarette consumption stands at just 8 per cent of tobacco consumed. The cigarette portfolio is future-ready with in-house technology benefits and the launch of more variants/formats.  
  2. The portfolio offerings are up 2X in the last eight years, offering a wide portfolio at multiple price points. New launches contribute 11% of overall volumes.  
  3. It highlighted better recovery trends in cigarettes after the second Covid-19 wave and has gained 100bps in market share.  
  4. Commentary indicated improvement in mix, with stability in the tax regime and constant innovations, complemented by strong last-mile execution.  

B- FMCG 

  1. Plans to fortify the core and leverage adjacencies. Core brands have displayed strong, ahead-of-industry growth in the last 10 years.  
  2. Aashirvaad Atta grew 5times with an 18 per cent CAGR; cream biscuits saw a 16 per cent CAGR; Bingo bridges segment reported a 25 per cent CAGR while Yippe Noodles posted a 42 per cent CAGR.  

C- Personal Care 

  1. Focus to be on future-facing categories and drive premiumisation with innovations driving affordability in premium categories.  
  2. Savlon and Nimyle have seen strong success after the acquisition (up 14x and 5x, respectively).  

D- ITC expects margin improvement to continue over the longer term with industry-leading margins across categories, led by manufacturing cost efficiencies, mix improvement and accretive acquisitions. 

E- Total reach up 1.2X (+6.6mn outlets), with the direct reach going up 1.4X (+2.5mn outlets) and the stockist network growing by 6X in the last five years.  

F- The e-commerce channel contributes 7 per cent of overall sales and 14 per cent contribution in personal care.  

G- Hotel business segment yet to recover and currently at 40-50 per cent of pre-Covid levels, while the leisure segment is seeing stronger growth. 

H- The focus is on moving toward an asset-light model by increasing managed rooms from 25% to 45 per cent in five years.  

I- Management sees tremendous potential in ITC Infotech and showed interest in exploring inorganic opportunities and a separate listing at an appropriate time.  

J- In the agri business, ITC MAARS will continue to see more investment, supporting the eChoupal initiative and creating a robust digital eco-system to deliver customised solutions to farmers. 

K- Caveats - High inflationary pressures likely to impact the margin trajectory in the near term.