ITC may underperform in near term: Analysts
ITC shares are likely to underperform in the near term amid the overhang of excess supply stemming from a likely stake sale by British American Tobacco (BAT), possible risk from two budgets in one year, and a slowdown in tobacco volume growth, analysts said.
The stock price has come down 13% in the past one month but is still double compared with a year earlier. On Friday, the shares ended flat at ₹415.50 on the BSE.
«Cigarette volume growth is moderating while two budgets in the next 12 months also create uncertainty on taxation,» Jefferies said on Thursday, while downgrading the stock to «hold» from «buy». «BAT's plans to offload about 4% stake further complicates the matter,» it added.
Jefferies reduced the target price of ITC to ₹430 from earlier ₹520.
On Thursday, BAT said it has been «actively working for some time» to sell a part of its stake in ITC. BAT holds a slightly over 29% stake in the Indian conglomerate spanning tobacco-to-hotels. Earlier indications from BAT suggest its intention to maintain up to a 25% shareholding in ITC to retain strategic influence, including veto rights. A 4% stake sale would be valued around ₹21,000 crore at the current market price.
Currently, the stock is trading 25 times its trailing 12 months' earnings. Among other tobacco companies, KT&G Corp is trading at 11.8x, Japan Tobacco at 14.5x and BAT at 13x. Technical analysts also see a downside for the stock in the near term. «After making a lower top formation at ₹480 level in January, ITC has given a fresh breakdown
