ITC gains 2% on better than expected December quarter results

ICICI Securities believes stable taxation on cigarettes would result in high growth in cigarette volumes in the medium term.

Shares of ITC gained another 2 per cent at Rs 238.50 on the BSE in Friday’s intra-day trade, extending its past seven-day rally to 11 per cent as the company reported a better-than-expected December quarter results (Q3FY22). The stock had hit a 52-week high of Rs 265.30 on October 18, 2021.

At 09:39 am; ITC erases its intra-day day gain and was down 0.50 per cent at Rs 233.15, as compared to 0.06 per cent rise in the S&P BSE Sensex. The counter has seen huge trading volumes, with a combined 26.4 million equity shares changing hands on the NSE and BSE.

Cigarettes-to-hotels major, ITC, reported strong all-around revenue performance led by robust recovery across markets due to rise in mobility and efficient distribution system.

The company reported a 14.81 per cent year-on-year (YoY) increase in consolidated profit after tax (PAT) at Rs 4,119 crore in Q3FY22. Its consolidated revenues were Rs 18,366 crore, up 30 per cent from Rs 14,124 crore in the year-ago period. Sequentially, too, revenues and profits were higher. Cigarettes staged a recovery with revenues at Rs 6,959 crore, compared with Rs 6,091 crore a year ago. Pre-tax profits from the segment stood at Rs 4,187 crore, compared with Rs 3,659 crore in the year-ago period.

ITC cigarettes business was one of the worst impacted businesses in last two years due to Covid-19 disruptions. Cigarette business growth in the current quarter reflect that volumes surpassed pre-covid high. Similarly faster growth in paperboard business also reflecting demand recovery from the user industries. Though, FMCG business has grown at a slower pace of 9.3 per cent, it is still stronger growth compared to most other FMCG peers, according to ICICI Securities.

The brokerage firm believes stable taxation on cigarettes would result in high growth in cigarette volumes in the medium term. “Further, we believe FMCG business margin uptick trajectory would continue (after the elevated commodity prices normalise). We are positive on FMCG growth & margins expansion possibility & the company’s better capital allocation policy (higher dividend pay-out & no more capex on hotels business,” the brokerage firm said.

“We upgrade ITC to ‘BUY’ with a revised target price of Rs 285 given its overall limited downside and in light of no tax hike for second consecutive year, making cigarettes more affordable and helping ITC win share from illegal players; stock correction by 11 per cent from its peak; 4.5- 5 per cent dividend yield; and reduced abatement in chewing tobacco, making them more pricey and benefitting cigarettes,” analysts at Edelweiss Securities said in result update.