ITC rises 2% in a weak market as brokerages give thumbs up to Q1 results

The company clocked 16.2 per cent year-on-year (YoY) rise in consolidated net profit to Rs 5,104.9 crore in Q1FY24

Shares of ITC climbed 2 per cent to Rs 457 per share in Wednesday's intra-day trade as brokerages gave thumbs up to the conglomerate's April-June quarter performance for fiscal year 2023-24 (Q1FY24).
 

In the recently concluded quarter, the company clocked 16.2 per cent year-on-year (YoY) rise in consolidated net profit to Rs 5,104.9 crore, led by earnings from cigarettes, FMCG (non-cigarette), and hotels.
 

Consolidated revenue from operations, however, declined 6 per cent YoY to Rs Rs 18,639.4 crore. On the sequential front, meanwhile, revenues and net profit were down 2.19 per cent and 1.36 per cent, respectively.
 

Segment-wise, revenue generated from the cigarette segment surged 12 per cent YoY, while pre-tax profits rose 10.6 per cent YoY.
 

In the non-cigarette FMCG segment, revenue jumped 16 per cent YoY, whereas pre-tax profits increased 110 per cent YoY.
 

Revenues from the hotel business, too, jumped 8.1 per cent YoY. However, paperboard and agricultural revenues skid 6.5 per cent, 23.7 per cent, respectively, on a YoY basis.
 

That said, the board approved the demerger of the hotels business, with the listing of shares likely by November 2024. 
 

So far this calendar year (CY23) the stock of cigarettes-to-FMCG company has surged 35 per cent, as against 7 per cent rise in the S&P BSE Sensex.
 

Here's how brokerages read ITC Q1FY24 results:
 

JPMorgan | Overweight

The brokerage firm said that they remain 'overweight' on the counter, with a target price of Rs 475 per share amid accommodative valuations and relative earnings security. Analysts note that the Q1 earnings before interest, tax, depreciation, and amortisation (Ebitda) numbers were in-line with estimates, with cigarette and FMCG performance trending well.
 

CLSA | Outperform

Since agriculture and paper-board business segments saw a weak Q1, analysts believe that strong performance from cigarette and other FMCG segments made up for their challenges. That apart, hotels demerger is expected to sharpen capital allocation and improve return ratios. Overall return ratios are expected to improve by 200-250 basis points (bps) from the demerger, they said.
 

Axis Securities | Buy

As the stock trades at 23x FY25E earnings per share (EPS), the brokerage firm asserts that a 3-4 per cent dividend yield provides a margin of safety compared to its peers. Moreover, with a stable outlook for the cigarette volume growth, the FMCG business reaching an inflexion point, and steady growth in hotels business, analysts see ITC a better play than other FMCG peers where valuations are elevated.
 

Prabhudas Lilladher | Accumulate

Analysts remain bullish on ITC's near-term outlook, estimating 10.7 per cent EPS compounded annual growth rate (CAGR) over FY23-25. The brokerage firm expects cigarette volumes to remain moderate to mid-single digits in the medium term, while calibrated margin expansion is anticipated for FMCG as input costs ease. The hotel's demerger, they said, will also improve ROCE and cash flows.