Brokerages bullish on ITC, analysts give a ‘buy’ recommendation

MUMBAI: ITC, Asia’s second largest tobacco company by market value and one of the heavyweights on the Nifty index with over 9% weightage, is one of the most expensive stocks on Dalal Street, trading at over 37 times its price-to-earnings ratio.

The high valuation has not discouraged leading broking houses to remain bullish on the stock. ITC has been a multi-bagger in the past decade delivering returns of over 14 times, in this period and a 200% gain in the last three years.

Fund managers say ITC has tremendous pricing power with elastic demand and the company is operating in a monopolistic environment, combined with foreign-entry barriers in the sector.

Among 51 broking firms, nearly 75% of analysts have put a ‘Buy’ recommendation on the stock, only 6% have put a ‘Sell’, while the rest have a ‘Hold’ call.


Domestic mutual funds and insurance firms are more bullish on the stock as they own 33% stake, whereas foreign institutional investors hold 19.8% equity in the company.

“ITC’s cigarette-business margins have surpassed our expectations, and it has been gaining market share from peers due to its widespread distribution network and product strength,” said Abneesh Roy, research analyst at Edelweiss Securities, in a note.

“We expect a positive surprise in cigarette-volume growth due to the company’s entry into the 64 mm category, and its expansion into new target markets,” added Roy.

The ITC management, in its recently held analysts meet, said it remains optimistic on an above-average operating margin-growth in cigarette business, as they have covered for all the tax increases (excise and VAT) and have taken double-digit price hike for this fiscal (FY14). ITC is the market leader in the Indian cigarette industry with 75% volume share.