ITC Target Price Set At Rs 500 By Goldman Sachs Post Demerger On Improving Profitability

Goldman Sachs set the target price for the recently demerged ITC Ltd. at Rs 500 per share, citing improving profitability and scale of its consumer business.

The consumer goods firm's share price adjusted by nearly 6% in the special pre-open session on their ex-date for the hotels business' demerger on Monday. ITC shares settled at Rs 455 per share on the BSE and at Rs 455.60 apiece on the National Stock Exchange.

The investment thesis is based on a steady recovery in cigarette business profit growth, Goldman Sachs said in a note. "Believe cigarette business is likely to deliver healthy earnings’ growth over fiscal 2023-25."

The brokerage firm maintained a 'buy' rating on the stock with a target of Rs 500 per share, an upside of 13% from the previous close.

The profitability and the scale of the FMCG business is set to improve with a 12% revenue CAGR growth over fiscal 2022-27, the report said. The consumer business operating profit margin could expand to 12% by fiscal 2027 from 9% in financial year 2022, Goldman Sachs said.

Regulatory restrictions on the cigarette industry, alternative cigarette products and lower-than-expected margins of the FMCG business are the key risks, the brokerage noted.

ITC's stock rose as much as 0.58% during the day to Rs 443.6 apiece on the NSE. However, it was trading 0.17% lower at Rs 440 apiece, compared to a 0.14% decline in the benchmark Nifty 50 as of 09:21 a.m.

It has risen 0.2% during the last 12 months. The relative strength index was at 33.3.

Of the 40 analysts with a rating on the company, 34 have a 'buy' call, four recommend 'hold', and two suggest 'sell', according to Bloomberg data. The 12-month analysts' consensus target price on the stock is Rs 540.11, implying an upside of 12.1%.