Expect ITC to recover as uncertainty is over: Kaustubh Pawaskar

Kaustubh Pawaskar, DVP Fundamental Research, Sharekhan, says expects ITC margins to consistently improve in the coming years. The non-cigarette FMCG business will be one of the key drivers. The hotel business as a whole has been performing well and that should continue. The cigarette business volume growth has been quite good and will continue unless there is any major jump in the taxes in the coming years. So, things should be good in the coming years and the dividend policy is also good for the company. At current valuation, the stock looks good”.

Do you think the BAT-ITC deal was an overhang and now that the deal has been done at a reasonable price, the ITC stock could bounce back?Kaustubh Pawaskar: Certainly. BAT selling stake in ITC was an overhang because there was no clear indication how much stake they are planning to sell. In fact, they had stated that they would not be looking at reducing stake beyond 25%. So, 3.5% stake they sold in the market at Rs 400 which is not even at discount at whatever the current market price is. I think the business fundamentals of ITC are intact. The stock has already corrected by 20% from its high in the last three months. It is trading at around 19 times FY26 earnings which is at a discount to its historic average. So, there was nothing to lose in the stock. We should expect the stock to recover from here as major uncertainty is over now.

Let us keep the block deal aside. What is your independent view on the business per se? If the company is growing, it is a matter of time before the stock recovers. ITC went up to Rs 460-470. Do you think based on the internals of the company, the way their cigarette business, the FMCG business, the hotel business is going, the stock can recover?Kaustubh Pawaskar: The non-cigarette FMCG business in the last three years have shown consistent improvement in the margin and margins are now above 10%. The company is targeting margins to improve to around mid-teens kind of margins over the next four to five years with whatever strategies and scale-up in the business.

They have also entered into many high margin categories. We expect margins to consistently improve in the coming years. The non-cigarette FMCG business will be one of the key drivers. We have seen the hotel business as a whole, performing well for the last two years and that should continue.

The cigarette business volume growth has been quite good considering the fact that there was no major changes in taxes and the company is taking share from illegal cigarette makers. That will continue unless there is any major jump in the taxes in the coming years. So, from the business perspective, things should be good in the coming years and the dividend policy is also good for the company. At current valuation, the stock looks good.

I am guessing any further correction would imply an attractive valuation?Kaustubh Pawaskar: Yes, any further correction would definitely imply attractive valuation from the current level.