ITC Celebrates After Ranking As India’s Seventh Most Valuable Firm.

Recently fast-moving consumer goods behemoth ITC overtook home loan provider HDFC in terms of market capitalisation, rising up to become the seventh most valuable listed company. ITC shares reached a record high in intraday trading recently of Rs. 405.90, up 1.4% on the BSE. It is one of the most varied companies in India, operating in sectors like paper, fast-moving consumer products, hotels, and cigarettes.

ITC scored seventh overall in the market cap rankings with a market value of Rs. 5.04 trillion, while HDFC came in at number eight with a market value of Rs. 5.03 trillion, according to statistics. ITC has outperformed the market thus far in the calendar year 2023 by 22% compared to a 3% decline in the S&P BSE Sensex. While this has been happening, HDFC has increased by 2.4%.

As seen by the performance of the stock, the market has recognised the firm for upholding solid fundamentals and its emphasis on long-term wealth development. The stock has returned 122.88% over the past three years, above the Nifty 100’s average return of 84.86%. ITC’s FMCG rivals saw returns of 62.32% within the same time frame.

Not long ago, the largest cigarette maker in India faced online mockery for its comparatively poor performance during the Covid stock market boom. ITC has increased 51% in FY23 due to a number of variables, whereas other index heavyweights like RIL and Adani Group equities have declined for different reasons. The firm has benefited from favourable commodity prices, a stable tax structure, and increasing consumer demand in addition to good foundations.

ITC has maintained consistent performance in recent quarters despite a shaky demand environment and persistent inflationary pressures on margins. The company’s tenacious performance was supported by a robust recovery in its primary cigarette business in the post-Covid period, constant double-digit growth in its non-cigarette FMCG industry, and quick growth in its hotel and paperboard, paper, and packaging sectors.

Brokerages’ outlook on ITC.

ITC, in the opinion of Centrum Broking, is well-positioned for long-term value creation because of to stable tobacco taxation, healthy cigarette volume growth despite King Size Filter Tip (KSFT) portfolio price increases of 3%. This is driven by the strong performance in the foods segment that is likely to fuel profitability, improving outlook and potential demerger for the hotel business, and resilient momentum in the paper business.

Additionally, expanded distribution for the FMCG food industry and the tobacco industry is assisting in market share acquisition. The brokerage company maintained a ‘BUY’ call with a target price of Rs 470, stating that favourable input RM/PM prices will show up in solid profits visibility for the majority of companies, including FMCG-Foods.

HSBC Securities analysts anticipate a double-digit volume/value increase for cigarettes in Q4 as well. In addition, according to the report, hotels are predicted to increase over 60% YoY on a weak foundation, while FMCG-Other categories may achieve sales growth in the mid-teens. As a result, YoY margins are probably going to increase.

The BNP Paribas analysts predict that the cigarette market will expand by 11% YoY, with a volume growth of 9% YoY (base volume increase of 9% YoY), supported by steady mobility and pricing. In addition, the brokerage company anticipates YoY growth in EBITDA margin, supported by solid cigarette sales performance, a robust rebound in the hotel industry, and advantages from lowering raw material prices in its FMCG division.

ITC is in a stronger position than its competitors, according to Mumbai-based brokerage Motilal Oswal, thanks to increased profits growth over the previous two years, notably in FY23, and improved earnings visibility compared to its competitors into FY24. According to the research, the primary drivers of ITC’s optimistic view include the company’s good volume growth in cigarettes, the absence of a significant rise in indirect taxes in the FY24 budget, the company’s ‘Other FMCG’ business’ resilient operational results, and the company’s hotels division’s promising future. The research also notes that the difficulties ITC previously experienced, such as an exceptionally harsh tax system and interruptions caused by COVID, appear to be fading.

Conclusion. 

While this is good news that the domestic company is on the heights of achieving new success, the fact that it increased cigarette consumption among Indians is a cause of concern for the long run!