ITC hits 2-month low; stock down 12 per cent from record high

Shares of ITC hit two-month low at Rs 441, down 2 per cent on the BSE in Thursday’s intra-day trade. At 11:19 AM; the stock of cigarette-to-consumer goods conglomerate was top loser among the S&P BSE Sensex and Nifty 50, which were down nearly 0.50 per cent each.

Currently, ITC was trading at its lowest level since June 13, 2023. With today’s correction, the stock was down 12 per cent from its record high of Rs 499.50 touched on July 24, 2023.

ITC is a diversified company engaged in various businesses including hotels. The Hotels Business of ITC includes ownership/ licensing/ management of several hotel properties and providing services including accommodation, dining, banqueting, etc.

The board of ITC on Monday approved the Hotel demerger, with share entitlement ratio of 10:1 for the demerged entity, wherein for every 10 shares of ITC, shareholders will get one share of the new entity.

ITC said the Scheme would unlock value of the Hotels Business for existing shareholders of the demerged company through independent market driven valuation of their shares in the resulting company.

Meanwhile, in Q1FY24, ITC’s top-line witnessed de-growth (including agri business) while margins saw strong improvement. Its gross revenue declined by 7 per cent YoY to Rs 16,843 crore while net revenue declined by 9 per cent YoY to Rs 15,659 crore but ex-agri its revenue grew by 10.6 per cent YoY.

The muted growth in revenue as compared to last year was because of de-growth in its Agri & Paperboards segments while except that the overall performance was strong as growth was seen in segments like cigarettes, FMCG and hotel.
Unlike its staple peers, ITC has consistently posted impressive performance in the Other FMCG business (16 per cent revenue growth and margin improvement despite elevated RM costs compared to pre-pandemic levels).

The Agri business faced setbacks due to export restrictions, while the Paper segment was affected by demand issues, competition from China, lower pulp prices, and higher input costs. However, the Hotels segment reported a robust performance, analysts at Motilal Oswal Financial Services said in Q1FY24 result update.

At a time when uncertainty looms over the industry, led by high inflation, unpredictable monsoons and continued weak rural sales, ITC’s recovery in Cigarette volumes offer decent earnings visibility at reasonable valuations and attractive dividend yield, the brokerage firm said.

Analysts at Emkay Global Financial Services believe the stock re-rating has been a factor of healthy EBIT growth in Cigarettes and strong recovery in the non-Cigarettes business. On a normalized base, the brokerage firm perceive that better execution would help the company outgrow the industry and drive profitability in its businesses.

“We believe its focus on innovation and premiumization will continue to benefit and at the same time focusing on ITC Next strategy will aid in scaling up all its businesses. Besides, its plan of demerging its hotel business and unlocking value for both the company and shareholders bodes well,” said analyst at Religare Broking.