ITC hits over 11-month high in muted market; stock up 10% in a week

ITC's FMCG business is expected to continue its growth momentum with higher growth in packaged foods categories, brokerages believe

Shares of ITC were trading higher for the sixth straight day on Monday, up 1.4 per cent on the BSE in an otherwise weak market. The stock also hit over 11-month high of Rs 221. In comparison, the S&P BSE Sensex was down 0.67 per cent at 48,705 points, at 12:52 pm.
 

In the past one week, ITC' stock has outperformed the market by gaining 10 per cent as compared to a 1 per cent decline in the benchmark index. It was trading at its highest level since February 1, 2020. ITC hit a 52-week high of Rs 243 on January 20, 2020.

Analysts believe due to strong demand conditions, backed by festive season demand and increasing out of home activity, fast moving consumer goods (FMCG) companies are likely to witness stronger growth in the December quarter. ITC FMCG business is expected to continue its growth momentum with higher growth in packaged foods categories, ICICI Securities said in a sector update.

For the October-December quarter (Q3FY21), ITC is expected to post a 4.6 per cent revenue growth on the back of 4 per cent growth in cigarettes sales. The brokerage firm expects a 6 per cent decline in cigarette volumes during the quarter. FMCG business is likely to continue the growth momentum with a 14 per cent sales increase, backed by strong demand for packaged food. We believe the growing trend of consumption shift from unbranded to branded is working well for many of the foods categories, it said.

Operating margin is expected to contract by 239 bps mainly on account of cigarettes volume decline and beleaguered hotels business sales. It expects a net profit decline of 8.1 per cent to Rs 3,806 crore in Q3FY21.

Analysts at CLSA have a ‘buy’ rating on the stock with a target price of Rs 255 per share. ITC is leveraging hygiene trends to reposition itself in the home and personal care segment. Covid-19 provided a new perspective for the company’s home and personal care efforts, which have shown muted success. As per our checks and analysis, ITC’s offering has had fair acceptance and repeat demand, the brokerage firm said in a recent report.

The company has leveraged organic trends via Savlon and Nimyle portfolio expansions. The company has also leveraged this opportunity via expanding and positioning skincare offerings under the Charmis and Dermafique brands, with relevant innovations. Following its new positioning, the company broke even in the home and personal care portfolio ahead of prior expectations for this to occur in FY22, it said.

An increase in illicit cigarettes, anti-smoking regulations, sharp goods & services tax/cess hikes, and aggressive diversification in the healthcare sector are risks to our positive view, it said, adding that it expects Covid-19-related impact on financials, given high dependence on tobacco.