ITC surges 6% in four days ahead of Q2 results; analysts expect a good show

Shares of ITC were quoting higher for the fourth straight trading day, surging 6 per cent during the period ahead of its July-September quarter (Q2FY23) earnings on Thursday, October 20, 2022.

At 11:17 AM, ITC traded 2 per cent higher at Rs 346.80, as compared to 0.66 per cent rise in the S&P BSE Sensex. The stock was trading closer to its 52-week high of Rs 349.50, which it registered on September 23. The stock had hit a record high of Rs 353 on July 3, 2017.

ITC is the biggest cigarette maker, and the second largest fast moving consumer goods (FMCG) company in India.

In the past six months, the stock has outperformed the market, by surging 33 per cent after reporting strong earnings. In comparison, the S&P BSE Sensex was up 5 per cent during the same period. Thus far in the current calendar 2022, ITC’s market price has appreciated by 57 per cent, as against 0.21 per cent rise in the benchmark index.

In the first quarter (April-June) of the current financial year 2022-23 (Q1FY23), ITC posted encouraging performance with around 26 per cent cigarette volume growth and margin expansion across cigarettes, paperboard and hotels business. The company witnessed strong growth across segments on low base, strong agri exports & higher paperboard prices.

In Q2FY23, ITC is expected to witness strong growth across segments considering lower sales in the base quarter of cigarettes, hotels & agri business. Analysts estimate 10 per cent volume growth in cigarette business along with better product mix.

ITC is likely to continue to report strong numbers with 25.3 per cent revenue growth. Analyst at ICICI Securities estimate 25.9 per cent growth in operating profit and net profit is estimated to grow by 15.8 per cent to Rs 4280.6 crore during the quarter.

“We estimate cigarette business sales of 16.9 per cent led by strong volumes as well as better product mix. We estimate 10 per cent volume growth during the quarter. We expect 10.7 per cent sales growth in FMCG largely led by prices, improved product mix and higher contribution of stationary brands,” the brokerage firm said in result preview.

Analyst at Centrum Broking sees potential for ITC to inch-up to new records soon, given likely potential for price hikes in cigarettes pre-empting next Union Budget, strong underlying performance with improved profitability in the Foods portfolio, improving outlook and potential demerger for the Hotel business, and bridging valuation gap.

“Moreover, successful product innovation and democratisation of premiumisation across cigarette segment, we expect ITC to execute selective price hikes (last hike was taken 2 years before). That said, strong volume up-tick and relative stability in taxation, we expect double-digit EBIT growth for cigarettes in FY23, yet FMCG to inch-up 9 per cent plus EBIT margin soon,” the brokerage firm said in company update.

Meanwhile, according to technical analysts at Kotak Securities, after a double bottom formation on the weekly and monthly charts, ITC stock successfully crossed the crucial resistance of Rs 285 and accelerated the positive momentum after the breakout.

Technically, on the weekly chart, the stock has formed a breakout continuation. Chart formation suggests breakout continuation formation is likely to continue in the medium to long term. Looking at the overall pattern, it will provide buying opportunities for positional traders with a decent risk-reward ratio. The trend reversal move is likely to continue till Rs 400, the brokerage firm said in its Diwali special technical picks.