ITC Q1 Results Beats Street Estimates, Shares Hit 3-Year High; Should you Invest?

ITC Shares Hit 3-Year High:  ITC shares hit a fresh over three-year high at Rs 316.65, up 3 per cent on the BSE in Tuesday’s intra-day trade after cigarettes-to-hotels major reported better than expected sales growth momentum across businesses for the quarter ended June 2022 (Q1FY23). The stock traded at its highest level since September 2018.

Diversified conglomerate ITC on August 1 said its net profit on a consolidated basis for the quarter (Q1FY23) came in at Rs 4,462.25 crore, up 33.46 per cent, as against Rs 3,343.44 crore registered a year back.

ITC reported a 38 per cent year-on-year (YoY) growth in its consolidated net profit, which came in at Rs 4,169 crore, amid growth across segments. In the year-ago period, profit stood at Rs 3,013 crore. Net sales came in at Rs 18,164 crore, up 41 per cent YoY and well ahead of expectations. Operating margins remained flat at 30.8 per cent. The company attributed the performance to a “robust” performance across segments.

While the trajectory of inflation remains a key monitorable, prospects of a favourable monsoon and the recent moderation in prices of key commodities along with proactive interventions by the Government and the Reserve Bank of India (RBI) augur well for sustained economic recovery and a pick-up in consumption expenditure, ITC said in a press release.

After many quarters of disruption & lacklustre growth, ITC has witnessed robust growth across segments. We believe the company would be able to continue to grow in high single digit in cigarettes & log a double-digit growth in all the other segments going forward. We remain positive on growth prospects, ICICI Securities said in a note.

Should you Invest?

“The impact of stable taxation along with actions by enforcement agencies signals early signs of share gain by legal cigarette industry from illicit trade, a key positive from the release. 1QFY23 result was strong with exceptional performance in hotels & paperboards, along with a slight beat in cigarettes – FMCG expectedly faced margin pressure,” said global brokerage Jefferies while retaining its Buy tag on ITC shares with a revised target price upwards of ₹360 apiece (from ₹305 earlier).

Hotels was a star performer in 1Q, with highest-ever quarterly revenue and Ebitda in over a decade. While YoY comps benefited from a low base, 3 year revenue CAGR was also healthy at 12%.

“We have turned constructive on the stock, led by: a) a better than expected demand recovery and a healthy margin outlook in Cigarettes, b) robust sales momentum in the FMCG business, c) lower drag from the Hotels business, and d) better capital allocation in recent years,” said domestic brokerage Motilal Oswal.

The stock has done well, with gains of around 17% since the brokerage’s upgrade to Buy in June 2022. It sees scope for further upside, based on a healthy earnings outlook and has maintained its Buy rating on the FMCG stock with a target price of ₹355 per share.

“A stable tax environment for Cigarettes in recent years has allowed ITC to calibrate price increases to avoid a disruption in demand. We expect this trend to continue and result in improved Cigarette volumes and earnings visibility over the medium-term,” Motilal Oswal added.

Brokerage house CLSA has maintained ‘outperform’ rating on the stock and raised the target price to Rs 330 per share.

The recovery in mobility helps strong recovery in revenue and margin, while the cigarettes business registered 25 percent volume growth with margin stable at 74 percent.

The other FMCG staged healthy growth and stable margin, while non-FMCG stages sharp recovery, said CLSA.

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