Tuesday saw shares of ITC Ltd. reach a record high, rising a further 3% following Monday’s 6.5% increase. On Tuesday, the stock broke the previous record high of Rs 499.7 and crossed the Rs 500 threshold for the first time.
After Finance Minister Nirmala Sitharaman left out any changes to tobacco taxation in her budget statement on Tuesday, the stock shot up on the following Tuesday. Stocks like ITC, who mostly get their revenue from cigarettes, were relieved by this.
ITC Ltd. was given a buy recommendation by Jefferies India, with a target price increase to Rs 585 per share, or 25% above the current market price.
According to Jefferies, the ITC was relieved that tobacco tariffs were left unaltered in the Union Budget. In February 2023, there was a 2 percent increase in the tobacco tax. Jefferies stated that ITC can concentrate on volume with less price increases because to this stability.
Jefferies added that until the Center pays state dues in March 2026, GST taxes are anticipated to be unchanged. The main businesses of ITC should gain from increased demand in the staple sector. The budget for February 2025 will be large, but this year’s small price increase will set the stage for next year.
The GST regime, which includes a compensating cess and a 28 percent GST rate, accounts for almost 90% of cigarette taxes. The remaining 10% is set aside until March 2026 to pay back state borrowings, guaranteeing tax stability for the ensuing 12 to 18 months.
According to Jefferies, volume normalization and input cost inflation caused ITC’s cigarette EBIT growth to drop to 4% in the second half of FY24 (from 10% in the first half and 21% in FY23).
ITC plans to increase revenue through volume, price increases, and improved mix now that the taxing of cigarettes is clear. By the second part of FY25, input cost inflation will have subsided, allowing margin expansion. According to Jefferies, growth in cigarette EBIT is expected to pick up speed, rising from 4% YoY in the second half of FY24 to 7% in the first half of FY25 and double digits by the end of FY25.
For the fiscal years 2025, 2026, and 2027, Macquarie increased its EPS forecasts for ITC by 2% apiece based on anticipated stronger volume growth and the current tax hike situation. Additionally, it raised its price objective for ITC from Rs 535 to Rs 560.
Motilal Oswal Financial Services’ Chandan Taparia anticipates that ITC’s stock would continue to rise, possibly reaching levels of Rs 545. Support is seen by him at lower levels, around Rs 490. He suggests purchasing at the current price.
36 of the 39 analysts that cover ITC currently have a “Buy” rating on the stock, two have a “hold” rating, and one has a “sell” or similar recommendation.
ITC’s stock underperformed in 2024 and, prior to yesterday’s development, had not changed year over year. Over the past two trading sessions, the stock has increased by 8.5%.
