Brokerages bullish on this meme favourite stock; see over 50% upside

Brokerages have maintained bullish stance on meme favourite ITC Limited post its first-ever virtual investor and analyst meeting.
 
The shares of India’s second-largest FMCG company have not been able to deliver a good return in the last few months but have taught the important art of patience to all its shareholders.
 
Currently, the undervalued stock is trading 11 per cent above its 52-week low and 17 per cent below its 52-week high. With a market capitalisation of more than Rs 2,70,000 crore, the shares stand higher than 200 day moving averages but lower than 5 day, 20 day, 50 day and 100 day moving averages.
 
Brokerage firm KRChoksey noted that the resilient business model, strong brand leadership position in the cigarette business, product innovation track record and premiumisation drive will help the company to establish itself as an FMCG major.
 
It mentioned that ITC would also examine value-accretive mergers and acquisitions opportunities in the FMCG and Infotech areas. Further, the company also plans to create an alternative structure for the hotel business in the short to medium term as soon as the industry recovers.
 
“Despite the ongoing Covid related slowdown, we see recovery signs in recent months and the current valuation is attractive for long-term investors. We value ITC shares using a SOTP (sum of the parts) approach implying 10.1x EV/EBITDA on FY24E to Cigarette business; 18.8x EV/EBITDA on Hotel segment; an average 5.5x EV/EBITDA on Agri/Paper business; and 10.2x on EV/Revenue on FMCG segment – which yields a target price of Rs 310,” KRChoksey wrote.
 
Centrum Broking believes that ITC is far below its fair value and will significantly outperform its peers. “We expect the operating scale to lift foods revenue and profitability in the near term, though the overhang on cigarette taxation could pose concerns. We maintain BUY, with a DCF based target price of Rs 345 (22.5x FY24E EPS),” it said.
 
According to a research report by Prabhudas Lilladher, ITC will target aggressive organic and inorganic growth in ITC Infotech given huge growth opportunities with little chances of any demerger or listing in the near term. FMCG and IT Services will unlock maximum value for shareholders over the years, with no shortcuts in the near term.
 
“We remain positive on business strategy, although uncertainty on cigarette taxation and global aversion to investment in Tobacco stocks remain an overhang. ITC trades at 16.3x Sept23 EPS, with 4.5 per cent dividend yield and 10.7 per cent EPS CAGR over FY21-24, 55 per cent discount to coverage universe. We maintain
BUY with SOTP based target price of Rs 270,” the brokerage house added.
 
ICICI Direct stated that the FMCG business is growing at a sustained pace with continuous improvement in margins. Also, duties & taxes on cigarettes will remain stable given the increasing prevalence of illicit & contraband cigarettes.
 
The brokerage firm expects strong growth in the paperboard business with strong demand from the user industry after the Covid-19 recovery. It has a ‘Hold’ rating on the stock with a target price of Rs 250 per share.
 
So, will the stock outperform going forward? Well, only time will tell. For now, let us keep investing in good quality stocks and be patient. As Warren Buffett rightly said, “The stock market is a device to transfer money from the impatient to the patient.”