ITC gains 4.5% on BAT stake sale, analysts see another 10-15% upside
"Major uncertainties hovering around the stock are over, while business fundamentals are intact," said Kaustubh Pawaskar, analyst, Sharekhan. "Efficient capital allocation plan and strong dividend payout make it a preferred pick in the large-cap FMCG space with attractive valuations."
Mumbai: The stock could run up by another 10-15% in the near term after gaining 4.5% on Wednesday as the by British American Tobacco () in the tobacco-to-FMCG major has removed an overhang for the stock, said ."Major uncertainties hovering around the stock are over, while business fundamentals are intact," said Kaustubh Pawaskar, analyst, Sharekhan. "Efficient capital allocation plan and strong dividend payout make it a preferred pick in the large-cap space with attractive valuations."
On Wednesday, shares surged as much as 9% to ₹438, before closing at ₹422.40. BAT, which is the largest shareholder in ITC, earlier in the trading session sold 43.69 crore shares of the company, representing 3.5% of the stake, through open market transactions worth ₹17,485 crore.
ITC shares have been underperforming since BAT announced its intention to sell the stake. They have declined by more than 10% since January 1, while the Sensex inched higher by a percent during the period.
Agencies"On the upside, the stock has potential to reach ₹460-480 zone over a period of few months; while for the short term, ₹440 seems to be an immediate resistance," said Mehul Kothari, technical analyst at Anand Rathi Shares & Stock Brokers. "Till the time ₹390 is not breached, any dip should be used as a buying opportunity in the stock."
ITC had hit an all-time high of ₹499.70 in July 2023 after running up over 130% from February 2022.
Brokerages such as HSBC and CLSA upgraded the stock to a 'buy' rating on Wednesday, while Morgan Stanley and Goldman Sachs maintained their 'buy' rating, citing clearance of supply overhang and the stock's steady prospects in a volatile market.
Morgan Stanley said BAT's stake sale will clear the uncertainty around stock performance and expects ITC's stock outperformance to resume after the stake sale.
"We remain bullish on ITC based on our expectation of a moderate cigarette tax environment, continued scale-up of non-cigarette businesses and reasonable valuations," said the note. Morgan Stanley put an overweight rating with a target price of ₹491.
HSBC upgraded ITC to 'buy' with a target price of ₹480, while Goldman Sachs maintained its 'buy' rating on ITC with a target price of ₹480.
Out of the 37 brokerages tracking ITC, 34 have assigned a 'buy' rating, with an average target price of ₹503. This target price represents a potential upside of about 19%.
BAT's ownership in ITC has decreased to 25.5% from its previous level of 29%. The British tobacco company has explicitly stated its intention to maintain its shareholding in ITC above 25%.
Source: Stocks-Markets-Economic Times
