ITC stocks hits Rs 300-mark for the first time since May 2019

Shares of ITC on Thursday hit Rs 300 mark for the first time since May 2019, surging over 10% so far in July amid hopes of better than expected earnings for June quarter. The stock has remained under performer for the last few years.

The stock hit a three year high of Rs 301.45 a share - a level last seen on 24 May 2019. At 10.15am, the scrip was trading at Rs 300 a share on BSE, up 1% from its previous close. So far this July the stock has increased over 10% while year to date it advanced 38%.

The firm has not announced the June quarter earnings date yet. However, 14 analysts estimates, it will post a net profit of Rs 3985.90 crore while revenue will be at Rs 15093.70 crore.

The stock emerged as a good defensive play in volatile equity markets. Global stocks markets including India are under pressure due to higher inflation and expected monetary tightening by central banks. Analysts also fear a recession due to aggressive rate hikes by the US federal reserve.

However, analysts expect ITC to be least affected by the rural slowdown as its portfolio comprises mainly foods. The company offers the best inflation hedge as its core business is completely immune to inflation risk. Investors also bought the stock due to a stable tax regime for the second consecutive year. Analysts say this has given the firm flexibility to increase prices without disrupting demand. "We expect this trend to continue and this should result in improved cigarette volumes and earnings visibility over the medium term", Motilal Oswal Securities said in a note to investors.

Brokerage firm Ventura Securities says strong growth across all business segments is expected to drive ITC's overall revenues to Rs 86,678.6 crore (17.7% CAGR) over FY21-24E. EBITDA is estimated to grow at a CAGR of 15.9% to Rs26,513.4 crore while net profit is estimated to grow at a CAGR of 14.5% to Rs19,739.7 crore.

"While valuations of global Tobacco peers have been restored to their pre-pandemic levels (Jan'19), ITC still trades at a 24% discount to its Jan'19 valuation of 25.4x one-year forward EPS. We value ITC at 21x FY24E EPS, implying a 65% premium to its global peer average. We believe the premium multiples are justified, given its strong visibility over the medium term and the defensive nature of its business, especially in a volatile macro environment", Motilal Oswal report added. The brokerage firm has maintained buy rating on the stock and increased its target price to Rs 335 a share.