They added, “We believe that these products would help the company to accelerate volume growth momentum, which was lost over FY14-21."Īnalysts estimate the company’s cigarette volumes grew around 9% in Q4 of 2021-22. are gaining share against illicit trades," said analysts from Dolat Capital Market Pvt. “Our recent interaction with dealers suggests that new products like Classic Connect, Gold Flake Indie Mint, etc. In its Q4 presentation, ITC said, “Stability in taxes is imperative for the legal industry to combat and progressively claw back volumes from illicit trade." Illicit cigarettes are a concern for ITC though recent launches have alleviated the pain to some extent. The absence of a tax increase on cigarettes in Budget 2022 is a big relief," said an equity fund manager at a large fund house. “For a stock like ITC, no news is good news. For instance, this year, the Union budget was kinder to ITC, with no tax hike on cigarettes. Many analysts reckon the valuations are still undemanding.Ī few other things have also fallen in place. Here, ITC provides good value and also an attractive dividend yield."īloomberg data shows ITC shares currently trade at about 18 times their estimated earnings for FY2024. As such, they are now valuing companies generating a lot of cash flow, that were beaten down. As Kunal Vora, head of India equity research, BNP Paribas, says, “Investors have understood the need to be positioned defensively. This is most visible in technology stocks.
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So, why are ITC’s shares suddenly in demand? With rising interest rates, stocks that command very high multiples but do not generate free cash flow have been punished. Plus, ESG (Environment, Social and Governance) concerns led to a massive de-rating in valuation multiples of global tobacco stocks, including ITC," says Manoj Menon, head of research, ICICI Securities. The company’s cigarette volume growth remained subdued. “During that period, adverse regulatory concerns (tax increases) weighed on the tobacco industry, and ITC, too, felt the heat. To put that performance in perspective: ITC’s shares fell 10% from CY2017 to CY2021, while the Nifty FMCG index surged 81%. This is at a time when shares of many consumer companies have been hammered by the slowdown in rural demand and the steep rise in costs after the Russia-Ukraine war began. ITC shares have risen by about 24% so far in CY2022, significantly beating sectoral index Nifty FMCG, which has gained just 1%.
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