On Tuesday, Phillip Securities began coverage of ITC Ltd. (NS:ITC:IN), a prominent player in the Indian tobacco industry, with a Buy rating and a price target set at INR520.00. The firm's analysis suggests that ITC is poised for consistent revenue and earnings growth over the medium term, provided there are no abrupt changes in cigarette taxation.
The Phillip Securities analyst highlighted the uncertainty surrounding ITC's future taxation as a critical factor for the company's investment potential. However, he noted that barring any unexpected tax hikes, ITC's primary goal would be to maintain its cigarette volume growth and enhance its product mix to boost profit margins. The analyst praised ITC's Fast-Moving Consumer Goods (FMCG) segment for its performance, which has been surpassing industry growth rates despite short-term challenges.
ITC's stock has seen a recent downturn due to speculations about a possible increase in the Goods and Services Tax (GST) rate on cigarettes from 28% to 36%. However, no official announcement has been made regarding such a change. The analyst views the current dip in ITC's stock price as an attractive entry point for investors looking for a high-yield stock with defensive qualities.
The price target of INR520.00 is based on a sum-of-the-parts valuation method, which translates to a forward price-to-earnings (PE) ratio of 26 times projected two years ahead. This valuation reflects the analyst's confidence in ITC's ability to navigate through potential regulatory challenges and capitalize on its strong market position.
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