Consumer sector-major ITC’s valuation is ignoring several positives in its fast-moving consumer goods (FMCG) business which is on a path for profitable scale-up with multiple value creation opportunities, said CLSA, which has a buy rating on the s...
By ET Bureau | Updated:
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Due to its underperformance in a rallying market, the stock has been a subject of several memes as well.
Mumbai: Consumer sector-major ITC’s valuation is ignoring several positives in its fast-moving consumer goods (FMCG) business which is on a path for profitable scale-up with multiple value creation opportunities, said CLSA, which has a buy rating on the stock.
CLSA’s target price of Rs 265 implies that the stock may rise 25% in a year. The stock gained 1.1% to close at Rs 211.75 on Tuesday after touching a high of Rs 214.25 during the day.
The Hong Kong-based brokerage expects ITC’s FMCG business to deliver a 31% compounded growth in operating profit (Ebitda) over the period from FY20 to FY24.
“ITC’s mature brands (Aashirvaad, Sunfeast, Yippee, Bingo and Classmate) offer significant opportunities to enter adjacencies with lower category incubation costs and relatively faster break-evens,” said CLSA. “There are also multiple margin levers with its improving sales mix towards the value-add segment, shrinking incubation costs, a turnaround in the personal care business, operating leverage benefits and the ability to enter adjacencies with limited incremental investment.”
This growth will be led by industry tailwinds, margin levers and improving asset utilisation, said CLSA. The brokerage said ITC’s valuation is “compelling” with a record high valuation discount to the FMCG sector average of 57% and a 6% dividend yield.
The stock has gained 11.8% in the last year while Sensex has gained 51% in the same period. Some analysts say ITC’s stock has underperformed as it has lagged behind peers on profit growth. Due to its underperformance in a rallying market, the stock has been a subject of several memes as well.
