Systematix Institutional Equities has adopted a cautious stance on ITC Ltd, citing a downturn in near-term cigarette volume demand and the adverse effects of price lags on overall profitability. The brokerage anticipates that ITC's stock will likely remain range-bound in the immediate future, leading to a 'Hold' rating.
The firm has kept its target price for ITC unchanged at Rs 290, valuing the stock at 18 times its estimated FY28 price-to-earnings (P/E) multiple, aligning with its current one-year forward multiple. ITC is presently trading at approximately 18 times its FY28 earnings per share (EPS).
Cigarette Demand Faces Headwinds
According to Systematix, cigarette demand is experiencing a significant year-on-year decline of 10-15 percent at both distributor and retailer levels. The 'Kings' 84mm segment has been particularly hard hit, with volumes plummeting 20-25 percent. In contrast, the DSFT 64mm and Regular 69mm segments saw a more moderate decline of 7-8 percent.
Distributors attribute this demand weakness to a combination of frequent and irregular price hikes, coupled with a reduced frequency of consumption among consumers. While April showed some stabilization and recovery in volumes, fresh price increases implemented between May and August reignited market volatility and further impacted demand.
Preferred Consumer Staples for Investment
Given the challenging outlook for ITC, Systematix has identified several alternative opportunities within the consumer staples sector. The brokerage has assigned 'Buy' ratings to Marico Ltd, Bikaji Foods International Ltd, and Dodla Dairy Ltd, with target prices of Rs 990, Rs 740, and Rs 1,295, respectively.
Furthermore, Systematix has also issued 'Buy' recommendations for Dabur India, Godrej Consumer Products, Hindustan Foods, and Patanjali Foods. Their respective target prices are Rs 510, Rs 1,045, Rs 680, and Rs 580.
Other Noteworthy Consumer Stock Ratings
Among other consumer stocks, Systematix maintains a 'Hold' rating on Britannia Industries, CCL Products, Colgate-Palmolive India, Hindustan Unilever, Nestle India, Prataap Snacks, and Tata Consumer Products. The target prices for these companies are Rs 6,035, Rs 1,290, Rs 2,080, Rs 2,205, Rs 1,620, Rs 1,045, and Rs 1,245, respectively.
Disclaimer: This report provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.