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ITC margins expected to improve, stock could rise by 20%

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During the January-March quarter, ITC reported a robust increase in sales across categories, as demand recovery boosted topline growth. The performance of the FMCG-to-hospitality segment is projected to improve in the future, enhancing the company’s profits, according to domestic brokerage firm Geojit Financial Services. With a consistent focus on innovation and improved product mix, ITC is well-positioned to capture demand across segments, the brokerage company stated, while keeping the company at a ‘Buy’ recommendation. ITC is currently trading at Rs 212 per share, down 0.61 percent.

Except for hotels, all ITC businesses had substantial year-on-year revenue increase during the January-March quarter. Standalone revenue climbed by 24.1 percent year on year to Rs 14,023 crore, owing to a healthy recovery across all categories, bolstered by higher demand for discretionary goods, according to analysts at Geojit Financial Services.

Going forward, the brokerage company anticipates that ITC’s FMCG division will maintain its growing trend. “Integration of Sunrise Foods should help ITC focus on value-adding niche products which further enables margin expansion for this segment,” the report said.

According to experts at Gejoit Financial Services, ITC’s FMCG division will gain from a shift in customer purchasing preferences from private labels to branded products. This shift in behaviour might be ascribed in large part to heightened worries about cleanliness and safety in the present pandemic scenario. ITC is well-positioned to capitalise on this opportunity, they say, with appropriate inventory levels and quick development on the outlet and stockist fronts to meet future demand.

So far this year, the share price of ITC has been constant, hovering at Rs 212. “Steady topline growth along with improved margins going forward should help reduce its operational leverage, further boosted by its ability to implement structural changes in its value chain,” according to the report. Geojit Financial Services has set a target price of Rs 256 per share on ITC, representing a 20% increase from current levels.

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