Most analysts set their goals but remain cautious about tobacco taxation


Most brokerages have raised the target prices of ITC Ltd. after the second trimester, but consider more stringent standards to reduce tobacco consumption as a surplus.

India’s largest cigarette maker saw profits increase sequentially, beating estimates in the quarter ended in September. His income also jumped in the previous three months.

Revenues from its cigarettes, remaining FMCG, hotel and carton businesses increased in the quarter. Only the agricultural segment saw a drop in its turnover.

After a disrupted first quarter of fiscal 22, the cigarette trade is now close to pre-Covid levels. Hotels saw their mobility improve, while cardboard volumes hit a record high during the quarter.

ITC shares lost more than 3.7% on Thursday at 11:25 am. Of the 38 analysts who follow the company, 28 have a “buy” rating, nine recommend a “hold” and one suggests a “sell,” according to Bloomberg data. The 12-month consensus price target implies an increase of 16.9%

Here’s what the brokerages have to say about ITC’s second quarter results:

ICICI Direct

  • Maintains the “hold” rating on the stock.

  • He revised the target price to Rs 260 (formerly Rs 240) based on a sum of the parts assessment, valuing the cigarette sector at 12 times earnings for fiscal year 24 and the FMCG sector. to 5 times the sales for fiscal year 24.

  • The FMCG business is growing at a steady pace with continuous improvement in margins and the size of the food portfolio opportunities is significant, which are key triggers for future price performance.

  • Strong growth expected in the cardboard business with strong demand from the user industry after the recovery of Covid-19.

  • Duties and taxes on cigarettes will remain stable given the increasing prevalence of illicit and contraband cigarettes.

  • With structural cost management, losses in the hotel sector increased from Rs 184.9 crore in the corresponding quarter to Rs 48 crore in the second quarter of fiscal 22.

  • The ITC share price has yielded close to zero for the past five years (from Rs 242 in October 2016 to Rs 238 in October 2021).

Edelweiss Securities

  • Maintains the “hold” rating on the stock with a revised price target of Rs 265 (previously Rs 238).

  • The opportunity to smoke in India remains attractive as per capita consumption and investment patterns have changed, with environmental, social and governance standards playing an important role.

  • The decision of the tobacco tax panel and the next EU budget are key variables. The high incidence of taxation poses a threat to the growth in the volume of cigarettes.

  • More moderate rate increases cannot be ruled out as goods and services tax collections have remained below normal.

  • For the FMCG business, the company wants to see market share gains in most categories. Food continues to perform well as Covid-19 boosted sales of hygiene products such as hand sanitizers, hand washing, antiseptic fluids and floor cleaners in the personal care portfolio. The expansion of the EBITDA margin is on the right track.

  • The slowdown in the macroeconomic environment is a major threat to hotel business.


  • Maintains buy quotes and comes to a fair value of Rs 270 with an increase of 13.2%.

  • Growing cost pressure, however, may limit margin gains in the short term.

  • At 17x earnings per FY23E share, the valuation looks reasonable.

  • E-commerce sales represented 7% of total sales for the first half of FY22 (2x compared to the first half of FY21).

  • The growth of the reseller network (2.1 times per year), the rural service infrastructure (1.1 times per year) and the intensification of innovative offerings are expected to foster a faster recovery and growth in sales / volumes of cigarettes coming.

  • Recent moves by the government to form a panel of experts suggesting increasing tobacco taxes may remain a short-term surplus, however.

  • The performance of the IT business, ITC Infotech India Ltd., has been remarkable and we now assess it at Rs12 per share.

Nirmal Bang

  • Maintains the buy rating with a target price of Rs 285 and a 19% hike (previously: Rs 290).

  • The hotel business recorded a smart recovery with overall revenue now 31% lower than in the second quarter of FY20, thanks to a strong recovery in occupancy rates and average room rates.

  • The hotel segment also became profitable in terms of EBITDA in the second quarter of FY22.

  • The brokerage is forecasting a 12% compound annual growth rate in earnings per share during FY21-24E.

  • At the current market price, ITC is now trading at 19.3x / 17.3x / 16.1x FY22E / FY23E / FY24E EPS and continues to offer a decent rise on a one year basis.

  • In the short term, all eyes would be on the recommendation of the expert group set up by the government to prepare a comprehensive tax policy proposal.


  • Maintains the buy rating with a target price of Rs 300 (previously Rs 236).

  • In a baseline scenario, the brokerage is forecasting 12% annual growth in cigarette ebit in fiscal years 21-24E on a low basis and 11% growth in FMCG revenue in constant currency terms.

  • Margins on cigarettes are expected to increase by about 140 basis points in FY21-24E as price increases are expected to more than offset tax increases.

  • Measures to tax other forms of tobacco would be viewed positively, while a sharp increase in the number of cigarettes to reach the 75% tax threshold would be a significant negative factor.

  • Strong cash flow and a strong balance sheet to help during the disruption induced by Covid-19.


  • Maintains the buy rating on the stock but increases its sum of the coin-based target price to Rs 280 (Rs 270 earlier) to reflect the value brought by ITC Infotech as it grows at a steady pace.

  • It values ​​the cigarettes activity at 15x the price / earnings ratio FY24E, ie a discount of 60% compared to its historical valuation multiple, due to growth problems.

  • Regulatory standards such as the implementation of plain packaging or other stricter standards to curb tobacco consumption remain a major risk.

  • Slowdown in consumer spending impacting the growth rate of FMCG activities.

  • The company launched five-stick packs of Gold Flake Premium, Capstan Special and Flake Mint to meet changing consumer preferences.

  • The brokerage assesses the FMCG business at 5 times FY24E sales, which is a reduction from the industry average and takes into account ITC’s current lower profitability.


Comments are closed.