ITC is world’s 3rd most valuable tobacco company after London-based BAT sinks
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London-based BAT, which sells cigarettes, tobacco, and other nicotine products, has seen a sell-off in its shares in the past week, rendering its market cap below ITC to $64 billion.
The stock fell sharply after the company said it would take a hit of around $31.5 billion as it wrote down the value of some US cigarette brands, acknowledging that its traditional combustible market has no long-term future.
The evolving stricter regulations and growing awareness of health risks have been squeezing tobacco companies’ traditional business lately, driving declines in cigarette volumes in some markets.
US-listed Philip Morris International and Altria Group currently occupy the top spots above ITC as the two most valuable tobacco companies in the world.
The cigarette segment is the mainstay for ITC, which is also into hotels, FMCG, and paper products businesses.
In the recent second quarter, cigarette revenues grew 10% on year to Rs 7,658 crore. The business made up over 46% of the total revenue of ITC. On the profit front, it remains the largest contributor, with sharing 75% of profits in the quarter.Operating profit in the same rose 8% YoY on a high base. The quarter saw sustained volume clawing back from illicit trade on the back of deterrent actions by enforcement agencies and relative stability in taxes.
The company is said to have reinforced its market standing through focused portfolio and market interventions and agile execution in the business.
So far this year, the shares of the Nifty company have risen 35%, compared with a 15% gain in the benchmark 50-share index.
Analysts are bullish on the stock for the long term as the company looks to capture growth opportunities in the non-FMCG business even as it upscales the existing FMCG and cigarettes business.
“ITC will continue to scale its FMCG and cigarettes business led by innovation and premiumization. Besides, the demerging hotel business is moving as per plan, which is a positive. The growth prospects are optimal going ahead. We maintain our Buy rating with a target price of Rs 535 on the stock,” said Religare Broking.
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