Why ITC Shares Are Up Nearly 9% in 3 Days

Shares of cigarette-maker ITC rose over 3 per cent today to a new 52-week high of Rs 402. This extends ITC's gains to over 8.5 per cent in three sessions.

Traders are betting on moderate excise duty hike on cigarettes in the Budget, which is due to be presented on February 28.

Bank of America Merrill Lynch in a note said that moderate hike in excise duty won't have a material impact on ITC's cigarette volumes. "A less than 10 per cent increase in cigarette excise can be absorbed by ITC without a material impact on volumes, albeit with a lag. However a hike over 10 per cent can accelerate the decline in cigarette volumes and pose downside risk to ITC estimates," BoAML said in a note.

BoAML also says that any announcement on implementation of GST would have a positive impact on the sentiment towards consumer-oriented stocks.

BoAML has a price target of Rs 420 on the ITC stock, valuing the stock at 26 times its earnings which is slightly higher that its historical trading range. "We believe this is justified given improving return ratios, the sustained dividend payout and strong free cash flows," BoAML said.

The brokerage house also noted that higher competitive intensity in FMCG segment and severe monsoon failure are downside risks for the stocks.

Deutsche Bank has a buy on ITC with a target price of Rs 440/share. ITC is its top pick among FMCG stocks. Taxation and regulatory issues are however key headwinds for ITC shares, added Deutsche Bank.

At 10:25 am, shares of ITC were up 1.16 per cent at Rs 394.