Jefferies downgrades ITC, slashes target price to ₹430
Brokerage firm Jefferies has revised its rating on ITC stock from “buy” to “hold,” citing expectations that the conglomerate, known for its diverse portfolio from hotels to cigarettes, will likely experience a period of stability without significant movement. Additionally, the international brokerage has reduced its target price for ITC shares from ₹520 to ₹430.
“We reduce our target multiple on cigarette business to 18x from 25x, given the overhang, as highlighted above. Downgrade ITC to Hold, with a revised PT of ₹430 (vs. ₹520 earlier),” the brokerage firm said in its report.
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Over the last three years, ITC stock has given a return of more than 3x from led by strong cigarette volume growth, scale-up in FMCG, improved capital allocation, & increase in FII holding.
In its earnings release, ITC’s largest shareholder, British American Tobacco (BAT), confirmed its intent to divest ITC stake. BAT stated, “We have a significant shareholding (in ITC) which offers us the opportunity to release and reallocate some capital. We have been actively working for some time on completing the regulatory process required to give us the flexibility to monetise some of our shareholding (in ITC).”
The company maintains a significant 29.03 percent ownership stake in ITC, valued at approximately ₹1.5 lakh crore. Asserting its stance, the firm has indicated that possessing a 25 percent stake in the company suffices to uphold its strategic influence.
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“ITC has had a strong run in the last 2-3 years with a strong recovery in cigarette volumes post Covid-19, which also led to a re-rating of the stock. With overhang from BAT stake sale, two taxation events over the next 12 months, and slowdown in volume growth, we expect the stock to remain range-bound going forward,” Jefferies said.
The brokerage firm further indicated that a prospective divestiture of a four-percentage-point stake could carry a valuation of $2.5 billion, resulting in a surplus of supply.
“BAT has been facing challenges from declining cigarette volumes across its key markets, notably the US, where it took a $32 billion write-down recently. BAT also has $40 billion in net debt, which translates into ~3x Ebitda and nearly 60 percent of market cap,” it said.
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Published: 09 Feb 2024, 09:20 PM IST
