The amendment of the GST Compensation Cess Schedule passed by the Lok Sabha late last week will affect the shares of FMCG major ITC, said JM Financial in its report. The schedule has been seen as a prelude to the possible government action on cigarette taxation, which has been fairly steady and reasonable over the last few years.
JM Financial said that the amendment was more of a move to make the tax net wider on non-cigarettes forms of tobacco, such as gutkha, pan masala, chewing tobacco, etc. It was likely that cigarette tax structures are not untouched, given that compliance therein is pretty robust already.
The current trading session saw ITC's shares traded 3.36% less than the 52 week high of Rs 394 hit on February 23, 2023. The share of ITC has gained 50.91 per cent in a year and increased 15.26% this year.
There were 2.27 lakh shares of FMCG firm, which changed hands for a turnover of Rs 8.62 crore on the BSE. The firm's market cap rose to 4.74 lakh crore. The stock was trading 0.82% higher at Rs 381.80 on the BSE at 11: 57 am.
The relative strength index RSI of the ITC stock is 50.8 in the technicals, signaling it is not trading in the overbought zone nor the oversold zone. ITC stock has a one-year beta of 0.5, showing very low volatility during the period. ITC shares are trading higher than the 5 day, 50 day, 100 day and 200 day moving averages, but are lower than 20 day moving averages.
The policy environment in recent years is quite supportive, and we continue to believe that the government's increasingly logical stance on tobacco taxation is a key value-driver for the ITC stock. The current market price is up 16% and the brokerage maintains a buy stance on the ITC with a target of Rs 440.
Motilal Oswal Financial Services also assigned a target of Rs 450 for the ITC stock earlier this month.
Motilal Oswal Securities said the recent stock of ITC Ltd might go ahead, because of better earnings visibility in the next few quarters, inexpensive valuations and attractive dividends. The stock has done well at a time when consumer peers in both the staples and discretionary categories have struggled, according to the brokerage, which has a target of Rs 450 for ITC. The dividend yield of ITC is healthy at 3.5 -- 4 per cent despite recent stock price appreciation.
In late February, Goldman Sachs maintained a buy call for FMCG major. ITC shares price target was set at 450 in a year by Goldman Sachs.
The FMCG business has a significant contribution to ITC's EBIT, according to Goldman Sachs. Capital allocation has improved, resulting in 85% PAT to FCF conversion. Despite the improvements, the PE of ITC is in line with the 15 year average. ITC's premium over global tobacco peers is in line with history. The valuations still trade at a steep discount to India FMCG despite being comparable, according to the global investment bank.