Shares of ITC hit a 3 year high in Thursday’s opening deals after the FMCG major posted 12 per cent growth in net profit to Rs 4,195 crore for the January-March period, compared with Rs 3,755 crore a year ago. The stock of the cigarettes-to-hotels major hit its highest level since July 2019, when it hit a high of Rs 282.95. At 09:44 AM; ITC was up 3.8 per cent at Rs 276.50 as compared to 2 per cent decline in the S&P BSE Sensex. The counter saw huge trading volumes with a combined 28.5 million equity shares having changed hands on the NSE and BSE.
The company attributed its performance to “strong” growth across all segments. Cigarettes staged a broad-based recovery with volumes surpassing pre-pandemic levels, the company said.
The company further said that the non-cigarette FMCG business, despite the unprecedented increase in prices of key inputs, performed well through focused cost management interventions across the value chain, premiumisation, product mix enrichment, and judicious pricing actions. In addition, the re-opening of educational institutions helped in the recovery of the education & stationery productions business, though it was still below pre-pandemic levels.
“After a relatively subdued first half, revenue in the second half of the year (FY22) witnessed double-digit growth. Staples and Convenience Foods remained resilient even as the pace of revenue growth witnessed moderation on a relatively high base,” the company said, adding that discretionary/out-of-home categories recorded strong growth surpassing pre-pandemic levels, driven by progressive improvement in mobility and favourable comparables.
The ITC board recommended a final dividend of Rs 6.25 per share, including an interim dividend of Rs 5.25 per share. Total dividend for FY22 is Rs 11.50 per share.
“In the ongoing environment, where material cost inflation is a worry, ITC’s resilient Cigarette margins render relatively better near-term visibility v/s peers. Longer term re-rating though will depend on diversification from cigarettes (81 per cent of FY22 EBIT) and whether sustained earnings growth returns to the late-teen levels seen in the first half of the last decade,” Motilal Oswal Financial Services said in a post result report.
Those at ICICI Securities, meanwhile, said: ITC’s share price has underperformed the FMCG index with negative 6.8 per cent return (from Rs 286 in May 2017 to Rs 267 in May 2022). We expect cigarette volumes, price growth in FMCG business & strong agri exports to drive revenues for the company in future.
Analysts at JPMorgan have upgraded ITC shares to overweight with a March 2023 price target of Rs 305. “In our view ITC offers a good combination of earnings visibility for FY23, strong cash flows and high dividend yield. We believe the stock should do well in current volatile markets as a good defensive play with undemanding valuations,” the note stated.
“We largely retain our FY23/24e EPS estimates. While FMCG peers combat growth slowdown and RM pressures, ITC is seeing a recovery in earnings, with good momentum across verticals and high margin visibility. Higher dividend payout and lower capex are also encouraging,” said Jefferies. It has retained Buy rating on ITC shares with price target of Rs 305.
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