ITC shares hit a more than three-year high of Rs 316.65 in intraday trade on Tuesday, up 3% on the BSE, after the cigarette hotel specialist reported sales growth across businesses for the quarter ended June 2022 (Q1), Better than expected in FY23). The stock has traded at its highest level since September 2018.

ITC reported a 38% year-on-year rise in its consolidated net profit to Rs 4,169 crore, helped by growth across segments. In the same period last year, profit stood at Rs 3,013 crore. Net sales of Rs 18,164 crore were up 41% year-on-year, well ahead of expectations. The operating margin was maintained at 30.8%. The company attributed the result to strong results across segments.

While the trajectory of inflation remains a key monitorable factor, the outlook for a favourable monsoon and the recent slowdown in key commodity prices and aggressive intervention by the government. Also, the Reserve Bank of India (RBI) bodes well for continued economic recovery and consumption selected in the ITC press release Spending increases.

In a note, ICICI Securities said: After several quarters of disruption and subdued growth, ITC witnessed strong growth across all industries. We believe the company will be able to continue high-single-digit growth in cigarettes and double-digit growth in all other segments going forward.

Aside from agribusiness, the wheat export ban will likely lead to relatively slow growth in subsequent quarters, which is expected to remain strong. Motilal Oswal Financial said our view on the stock has turned constructive in recent years on the back of better-than-expected demand recovery, healthy cigarette margin prospects, strong FMCG sales momentum, muted hotel headwinds and improved capital allocation.

In recent years, the stable cigarette tax environment has enabled the ITC to adjust price increases to avoid demand disruptions. The brokerage expects the trend to continue in the medium term as visibility into cigarette sales and earnings improves.

Meanwhile, ITC’s stock, up 45% year-to-date (versus the Nifty FMCG index’s 13% gain), has outperformed its peers by a wide margin, driven by heightened risk aversion, rising interest rates and a shift to high-dividend-yielding stocks. Inflation Concerns, notable past underperformance (hence the attractive previous valuation), and prospects for a recovery in cigarette sales and earnings as the economy open up.

Analysts at HSBC Securities believe that the rise in share prices reflects strong expectations from most companies for cigarettes, which the brokerage believes has passed a structural growth phase.