ITC shares in bear grip: Should you buy this stock post Century Pulp acquisition?

ITC Ltd is 23 per cent off its 52-week high of Rs 528.50 hit in September last year. But if Nuvama is to go by, the FMCG stock has potential to hit fresh highs going ahead. The Kolkata-based FMCG major has recently announced the acquisition of ‘Century Pulp and Paper’ (CPP) from Aditya Birla Real Estate for Rs 3,500 crore at EV/sales of 1.2 times. 

Nuvama said the fresh development, a 4 per cent cigarette volume growth in Q4FY25 and a stable tax policy in FY26, should support ITC. The domestic broking firm said ITC’s FMCG vertical may see a gradual improvement from H2FY26, as it retained ‘Buy’ call on the cigarette stock with a target price of Rs 571. 

ITC is actively diversifying beyond tobacco and has done acquisitions in segments such as FMCG and IT in the past . This one is large-scale and once integrated and stabilised, it will add 50 per cent to ITC’s paper business sales and 6 per cent to overall sales, it said. 

The synergies will bulk up ITC’s paper business Ebitda/ton by 30–40 per cent. It may also enhance ITC's capacity and lift RoCE to 17-18 per cent, Nuvama said, 

"Additionally this deal gives ITC to access North India with a much faster time-to-market than a greenfield option, better customer access and proximity to market," Nuvama said.

"ITC’s PPP business has generated Rs 4,000 crore FCF over past few years; hence this takeover is ‘self-funded’. ITC has over Rs 20,000 crore in cash; hence, we do see better utilisation of cash that makes it a better player both at the front- and back-end. In terms of valuation, the acquisition at an EV/Ebitda of 6.9x and EV/sales of 1.2x is reasonable in our view," Nuvama said. 

The transaction is expected to be consummated in six months subject to respective regulatory approvals.

Nuvama said the acquisition may boost ITC’s paper capacity to 1.3 mmt from 0.8 mmt. It may particularly boost ITC’s market share in the pulp, paper, and sustainable packaging industry, consolidating its leadership position.

"Currently ITC’s paper factories are in southern markets, and this takeover gives ITC ready access to North India. Additionally this will lead to faster time-to-market than a greenfield option, which usually take 5–6 years, plus customer access and better proximity to market for ITC’s paper business. In all, this acquisition helps ITC cater to the rising demand for sustainable and recyclable packaging, especially from FMCG, e-commerce and food industries," ITC said.