On Monday, UBS analyst Amit Sachdeva upgraded shares of ITC Ltd. (NSE:ITC:IN) from Neutral to Buy, adjusting the price target to INR 490.00, up from the previous INR 470.00. The revision comes after a notable decline in the company’s share price, which has been influenced by market concerns regarding taxation policies. The new valuation reflects a more appealing entry point for investors, according to the analyst.
Sachdeva’s analysis indicates that the current market valuation of ITC is based on an estimated 4% growth in cigarette EBIT, which is below the 6% historical average. This conservative estimate, he suggests, offers the potential for upside risks. The analyst points to the possibility of a demand recovery in the FMCG sector, which could lead to a resurgence in earnings growth driven by both revenue and margin improvements.
UBS forecast for ITC anticipates an overall earnings per share (EPS) compound annual growth rate (CAGR) of 10% for the fiscal years 2025 to 2027. This outlook is marginally more optimistic compared to the consensus forecast of a 9% EPS CAGR. The potential for earnings growth revival is seen as a secondary catalyst that could further bolster the stock’s performance.
The upgrade by UBS reflects a positive outlook on ITC’s future performance, particularly in the context of its cigarette business and broader FMCG operations. The analyst’s comments underscore the potential for the company’s earnings to grow at a rate that exceeds current market expectations, which may prove beneficial for investors considering the stock.
ITC’s shares are expected to respond to the revised rating and price target as market participants digest the new information from UBS. The upgrade provides a signal that the firm sees a favorable risk-reward scenario for the company, despite recent market trepidations surrounding taxation impacts on the tobacco industry and FMCG sector volatility.
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