 "ITC limited")
Shares of ITC hit an eight-month low at Rs 411.85 as they dipped 5 per cent on the BSE in Thursday's intraday trade. amid heavy volumes, after the company's largest shareholder, British American Tobacco (BAT) said it could sell some of its stake in the company.
BAT holds 29.03 per stake in ITC through Tobacco Manufacturers (India) Limited, Myddleton Investment Company Limited, and Rothmans International Enterprises Limited.
Tadeu Marroco, Chief Executive of BAT, while announcing December quarter results, said that the company continues to pursue all opportunities to enhance balance sheet flexibility and, as part of this, the company regularly reviews its stake in ITC.
"We recognise that we have a significant shareholding which offers us the opportunity to release and reallocate some capital," Tadeu Marroco said.
"Our shareholding in ITC has existed in one way or another since the early 1900s and is subject to numerous share capital changes and regulatory restrictions. We have been actively working for some time on completing the regulatory process required to give us the flexibility to monetise some of our shareholding and will update you at the earliest opportunity," he added. CLICK HERE FOR DETAILS
Meanwhile, the stock of the biggest cigarettes & second largest fast moving consumer goods (FMCG) company recorded its sharpest intraday fall in the past one year. Earlier, it was down 6.6 per cent on February 1, 2023. Currently, ITC is trading at its lowest level since May 2023.
The stock has corrected nearly 18 per cent from its 52-week high. It had hit a 52-week low of Rs 369.70 on March 17, 2023.
Average trading volume on the counter jumped over two times with a combined 32.56 million equity shares having changed hands on the NSE and BSE till 02:03 PM. In comparison, the S&P BSE Sensex was down 0.98 per cent at 71,443.
Q3 numbers
In the past two weeks, the stock price of ITC has slipped 10 per cent after the 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.
ITC's Q3FY24 operating performance lagged Street expectation due to lower-than-expected revenue growth affected by a decline in the agri-business revenues, lower than expected growth in the hotel business and a soft cigarette performance. Cigarette net revenue/EBIT growth was at 4/2 per cent, with volume estimated to have fallen by 1 per cent (5 per cent 4-year CAGR) on a high base.
The recent stock run-up and limited earnings surprise scope, given a higher base, further restrict rerating potential, according to HDFC Securities. The brokerage firm has cut its estimates by 1 per cent over FY24-26 to reflect Q3 performance.
Near-term pressure
Near-term pressure
Analysts at Axis Securities, meanwhile, believe ITC is likely to face near-term pressure as the demand environment is expected to remain challenging, as witnessed by most FMCG companies.
However, its long-term growth outlook remains strong as most businesses (excluding Agri/Paper) are on track. Growth in cigarette volume has normalised but it remained stable owing to stable taxation, market share gains from illicit cigarettes, and new products launches, the brokerage firm said in the result update.
The FMCG business has reached the inflection point as Ebit margins continue to increase, driven by the ramp-up in outlet coverage, effective implementation of localisation strategy, premiumisation, use of demand and supply side technologies, and moderating raw material input costs; the demerger of the hotel business will strengthen ITC's balance sheet and improve return ratios. In addition, the reasonable valuation provides a margin of safety, analysts said.
ITC has seen a slowdown in growth in the cigarette business this quarter due to a high base. The Paperboards, Paper and packaging and Agri segments continue to be muted. While the revenue of the Paperboards, Paper and Packaging segment has stabilised Q-o-Q, margins have seen further pressure, and we remain watchful of the margin trajectory of this business, analysts at KRChoksey Shares and Securities said.
However, post demerging of asset-heavy hotels business, the return profile of ITC will substantially improve in the coming years. The improving margins in the non-cigarette FMCG business will also add to improvement in return ratios and valuation multiples of ITC, according to Sharekhan.
A correction will provide good investment opportunities for investors with strong growth levers and attractive valuations, the brokerage firm had said in the result update note.
