1:10 Split Soon: Super FMCG Stock ITC Nears 52-Weak High; Buy For Target Price Rs 550-575

FMCG giant ITC Ltd's share price surged on August 13, to trade near its 52-week high of Rs 510.60 apiece. This super large-cap stock is over Rs 495 apiece currently and is soon going to demerger its hotel business in the ratio of 1:10. In a month, the stock gained by nearly 7%. The all-time gains of ITC are almost 9,123%.

Brokerages like Axis Direct and BOB Capital Markets have recommended BUY at the latest on ITC shares for target prices ranging from Rs 550 to Rs 575.

Currently, ITC shares have gained nearly 1%, hitting an intraday high of Rs 497.60 apiece on Tuesday. The stock is trading at Rs 497.60 apiece with a market cap of Rs 6,18,333.21 crore.

ITC's price-to-equity ratio is at 30.20x, while the return on equity is at 28.29% which is strong.

ITC is set to demerge its hotel business which will be in the ratio of 1:10. Because as part of the merger process, for every (Ten) Ordinary Share of the face and paid-up value of Re. 1 each held in ITC, 1 (One) equity share of the face and paid-up value of Re. 1 in ITC Hotels. After the completion, ITC's stake will be reduced. The shareholders of ITC will hold about 60% of ITC Hotels directly, which is proportionate to their shareholding in ITC. The balance stake of about 40% will be held by ITC.

Axis Securities on ITC:

In its latest report, Axis said, "We have tweaked our FY25/FY26 estimates marginally to account for volatile input costs and continued pressure on the paper and paperboard business. However, we maintain our BUY rating on the stock as we roll our estimates to Jun'26 EPS." The target price is set at Rs 550 by the brokerage.

Axis Securities highlighted two key rationale for its recommendation. These are:

1. The company's Q1FY25 overall results were in line with estimates. This was due to broad performance across segments: Cigarettes (up 6% YoY, ~2-3% volume growth), FMCG (up 6% YoY), and Hotel (up 11% YoY). However, after a subdued performance over the last few quarters, the agri and paperboard businesses grew 22% YoY, driven by value-added agri products, leaf tobacco, and wheat, while the paperboard business continued to be impacted. EBITDA remained flat, up 1%, due to higher tobacco prices and a subdued paperboard business.

2. The brokerage believes that ITC's long-term growth outlook remains strong as most businesses (excluding Paper) are on track with 1) Growth in cigarette volumes remaining stable, led by differentiated and premium offerings; 2) The FMCG business reaching its inflexion point as EBIT margins continue to increase, driven by the ramp-up in outlet coverage, effective implementation of localization strategy, premiumization, use of demand and supply-side technologies, nd moderating raw material input costs; and 3) The demerger of the hotel business, which will strengthen ITC's balance sheet and improve return ratios. Additionally, the reasonable valuations provide a margin of safety.

BOB Capital Markets On ITC:

In BOBCaps' view, ITC's growth will gather pace as the demand environment improves and strategic initiatives taken by the company yield results. The cigarettes business likely benefited from pre-budget buying but the FMCG others and hotels segments have both registered a healthy performance although inflation might limit results. Given reasonable earnings visibility in the Cigarette, FMCG and Hotels businesses, the brokerage maintained BUY on ITC. The brokerage's SOTP-based TP stands revised to Rs 575 (change in estimates and increase in peer multiples).

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.