Shares of ITC Ltd. hit a record high on Tuesday, gaining another 3 per cent after Monday’s 6.5 per cent surge. The stock crossed the mark of Rs 500 for the first time, surpassing the previous record high of Rs 499.7 on Tuesday.
The stock surged on Tuesday after Finance Minister Nirmala Sitharaman during her budget speech on Tuesday made no changes to tobacco taxation. This brought relief to stocks like ITC, which derive a majority of their revenue from Cigarettes.
Jefferies India upgraded ITC Ltd to a buy rating, raising the target price to Rs 585 per share, up 25 percent from the current market price.
Jefferies noted that the Union Budget kept tobacco taxes unchanged, which came as a relief for ITC. The last tobacco tax hike was 2 percent in February 2023. Jefferies said that this stability allows ITC to focus on volume with minimal price hikes.
Jefferies further noted that GST taxes are expected to remain stable until March 2026 as the Centre settles state dues. Improving demand in the staple sector should benefit ITC’s key businesses. The February 2025 Budget will be significant, but a modest price hike this year will lay the groundwork for next year.
About 90 per cent of cigarette taxes fall under the GST regime (GST rate at 28 per cent + compensation cess), earmarked until March 2026, to repay state borrowings, ensuring tax stability for the next 12-18 months.
Jefferies said ITC’s cigarette EBIT growth slowed to 4 per cent in the second half of FY24 (versus 10 per cent in the first half and 21 per cent in FY23) due to volume normalisation and input cost inflation.
With clarity on cigarette taxation, ITC is set to boost revenue through volume, price hikes, and better mix. Input cost inflation will ease by the second half of FY25, supporting margin expansion. Jefferies expects cigarette EBIT growth to accelerate from 4 per cent YoY in the second half of FY24 to 7 percent in the first half of FY25 and double digits by FY25 end.
Macquarie too raised its EPS estimates for ITC by 2 per cent each for financial year 2025, 2026 and 2027 on expected better volume growth given the status quo on tax hikes. It also increased its price target on ITC to Rs 560 from Rs 535 earlier.
Chandan Taparia of Motilal Oswal Financial Services expects shares of ITC to extend their gains towards levels of Rs 545. He sees support on the downside at levels of Rs 490. He advises buying at current levels.
Out of the 39 analysts that have coverage on ITC, 36 of them now have a “Buy” rating on the stock, two of them said “hold”, while one has a “sell” or equivalent recommendation.
Shares of ITC were underperformers in 2024 and were unchanged on a year-to-date basis until yesterday’s move. The stock has now risen 8.5 per cent in the last two trading sessions.
Comments
0 comment