ITC extends fall, slips 5% in 3 days as Q3 results miss Street estimates

Analysts expect the stock to remain muted in the near-term given a weaker overall environment

Shares of ITC slipped 2 per cent to Rs 441.70 on the BSE in Tuesday's intraday trade after the fast moving consumer goods' (FMCG) company reported 3.2 per cent year-on-year (Y-o-Y) decline in earnings before interest, taxes, depreciation, and amortisation (Ebitda) at Rs 6,024 crore for the December quarter (Q3FY24). 

The fall in Ebitda was a first in 12 quarters and below analysts' estimates. Miss was led by cigarette, fast moving consumer goods (FMCG), and paperboards business, while hotels and agri were a tad better.

ITC's stock was trading lower for a third straight day, falling 5 per cent during the period. At 10:25 AM, it was quoting nearly 1 per cent lower at Rs 447.15, as compared to 0.12 per cent decline in the S&P BSE Sensex. Average trading volumes on the counter jumped nearly two-fold with a combined 16.3 million equity shares changing hands on the NSE and BSE.

During Q3FY24, ITC reported a 10.8 per cent Y-o-Y rise in consolidated net profit to Rs 5,572 crore from Rs 5,031 crore. Consolidated revenue from operations was at Rs 17,483 crore, up 2.1 per cent over the previous year quarter.

The Agri business continued to be impacted by government restrictions. The Paper segment, too, is facing challenges, including demand issues, competition from China, lower pulp prices, and higher input costs, although signs of a sectoral revival are emerging. The Hotel segment, meanwhile, posted a robust performance with strong growth in the average room rate (ARR) and occupancy.

"Amid a challenging macroeconomic and operating environment, and high base effect in some operating segments, the company delivered a resilient performance during the quarter. The cigarettes segment witnessed consolidation on a high base after a period of sustained growth momentum," the company said in a statement.

Sharp escalation in costs of leaf tobacco and certain other inputs, along with increase in taxes were largely mitigated through improved mix, strategic cost management and calibrated pricing, the company added.

Cigarette volume declined 2 per cent against estimates of a slight growth projected by brokerage firm Jefferies. "Net cigarette revenue grew 2.3 per cent Y-o-Y, led by pricing and mix. While the premiumisation trend continues, there may be pressure at the popular price points," the brokerage said.

"In addition, given a normal budget last year, there may have been a higher base (at the exit due to channel inventory). LFL Cigarette earnings before interest and tax (Ebit) margin was flat Y-o-Y as price hikes were offset by input cost inflation (tobacco, filter rods). Cigarette Ebit hence grew just 2 per cent Y-o-Y, 6 per cent below estimate," analysts at Jefferies said in result update. ITC is likely to stay range-bound until final Budget (Jul-24), it added.

That apart, according to Motilal Oswal Financial Services (MOFSL),  ITC's revenue growth of 1.6 per cent in Q3FY24 came-in significantly below their estimate of 5.7 per cent growth, as cigarette volume declined 1-2 per cent Y-o-Y (est. 2 per cent growth) on a high base of 15 per cent growth in 3QFY23. The four-year volume CAGR stood at 5 per cent. The premium cigarette segment continued to outperform, while the value segment saw weakness, the brokerage firm said in result update.

Nonetheless, the resilient nature of ITC’s core business amid an uncertain environment in the sector, along with a 3-4 per cent dividend yield, makes it a good defensive bet in the ongoing volatile interest rate environment, MOFSL said.

Analysts at JM Financial Institutional Securities, too, expect stock to be muted in the near-term given a weaker overall environment, though the brokerage firm said it reckons there is potential for re-rating given a sharper capital allocation strategy.