Puffing on! ITC shares hit record high on Q3 results. Should you buy, sell or hold?

NEW DELHI: After a positive surprise in the Budget last week, ITC bulls have found yet another reason to cheer up - a "picture-perfect" earnings in the December quarter where the net profit shot up 21% on-year. Following the boost, the Nifty stock hit a fresh record high to Rs 388.20 on Monday.

Global brokerage firm Jefferies has upgraded its FY23-25 EPS by 4-6%, marking the third straight quarter of EPS upgrades. "ITC should benefit from an earnings recovery as COVID headwinds subside. Early signs of share gains from illicit cigarettes are also encouraging. However, any unfavourable changes in taxation policy are a downside risk," Jefferies said.

Analysts also point out that the Budget reflected a supportive policy-environment for the legal cigarettes industry which is a key value driver for the stock.

Where's ITC shares headed? Here's what analysts say:

Nomura
We expect the strong business growth momentum to continue across divisions. In cigarettes, we believe a pragmatic tax regime not only acts as fodder for volume growth from illicit but also increases its predictability premium. We expect FMCG, hotels, paperboard to continue to witness improvement in business and margins supported by new launches, reach expansion. We increase FY23F-25F EPS by +2-3% to factor in the 3Q23 beat. We value ITC on a SoTP basis, on Mar-25F EPS (unchanged) to arrive at our revised TP of Rs 455 (Rs 440 previously).

Jefferies
We use SOTP methodology to value ITC cigarette business at 23x Dec-24 earnings, new FMCG at 4.5x Dec-24 sales, agri and paperboard businesses at 15x Dec-24 EPS, and hotels at 1x Dec-24 invested capital to arrive at a price target of Rs 450 per share.

JM Financial
ITC reported yet another picture-perfect quarter - a beat vs our expectations for the fifth time running. ITC remains one of our favoured picks with a target price of Rs 440.

Morgan Stanley
Morgan Stanley has maintained an overweight rating on ITC with a target price of Rs 415 post Q3 results.

Q3 earnings were ahead of Morgan Stanley and consensus estimates, it said. A strong beat on Cigarettes, Hotels, and FMCG businesses was a key positive. Strong results and positive implications from the Budget augur well.

Nuvama
We expect legal cigarette players to continue to gain market share from illegal players with ITC leading the pack. ITC is one of our top picks; we retain ‘BUY’ with a SoTP-based TP of Rs 450.

Motilal Oswal
The valuations of ITC’s global tobacco peers have been restored to their preCovid levels (Jan 2019), and while ITC’s multiples have followed the same trend, it still trades at a ~15% discount to its Jan'19 valuations of 25.4x one-year forward EPS. The stock has gained ~45% since our upgrade to Buy call in Jun 2022 and we believe there is further scope for upside based on its healthy earnings outlook. Maintain BUY with a TP of Rs 450 (23xFY25 EPS).

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)