ITC’s cigarette business has seen better-than-expected demand recovery, following which the margin outlook looks strong. There is a healthy sales momentum in the FMCG business.
Best Stock to Invest: FMCG major and cigarette maker ITC is among those stocks which have remained firm in the downtrend of the market this year. ITC has remained bullish this year and the stock has given around 22 per cent returns in 2022 so far. Even today, the stock gained about 1.5 percent to Rs 267 and is trading close to the 1-year high. Brokerage house Motilal Oswal is bullish on the stock and has given investment advice with an estimate of 27 per cent return. The brokerage says that the demand in the cigarette business is strong. You will get the benefit of increase in prices. On the other hand, the strong product portfolio and dividend paying trend in the FMCG business is making it a strong defensive bet.
Margin outlook strong
Brokerage house Motilal Oswal says that ITC’s cigarette business has seen better demand recovery than expected, after which the margin outlook looks strong. There is a healthy sales momentum in the FMCG business. Recovery is also coming in the hotel business. Capital allocation has been better in recent years. The brokerage house has given investment advice in the stock with a target of Rs 335. In terms of current price of Rs 264, it can give 27 percent return.
Improvement in revenue visibility
A stable tax environment for cigarettes in recent years has given space for ITC to hike prices to avoid demand dispersion. Hopefully this trend will continue. Due to which there will be improvement in revenue visibility along with cigarette volumes in the mid-term.
FMCG product portfolio strong
The brokerage says that ITC’s FMCG product portfolio is strong, thereby benefitting it in a rapidly changing demand environment. In some categories, its position is that of leadership, which gives it pricing power. Due to which the pressure of increasing the input cast is reduced. At the same time, the company pays regular dividends, due to which it can prove to be a better defensive bet. The brokerage estimates that the earnings growth of ITC for FY22-24 may be 15 percent CAGR.
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of The Financial Express. Markets are risky, so take expert opinion before investing.)
