Shares of ITC hit a 52-week high of ₹279.15, surging 4.7 percent on the BSE in intra-day deals on Thursday after the company reported strong results for the March quarter (Q4FY22), beating analysts' estimates. In comparison, the Sensex was down over 2 percent or 1,167 points at 53,041.
The firm reported an 11.60 percent year-on-year (YoY) jump in consolidated profit after tax (PAT) at ₹4,260 crore in Q4FY22 led by growth across segments. Its profit came in at ₹3,817 crore in the year-ago quarter. Meanwhile, its consolidated revenue rose over 15 percent to ₹17,754 crore from ₹15,404 crore in the year-ago period.
The company attributed its performance to "strong" growth across all segments. Cigarettes staged a broad-based recovery with volumes surpassing pre-pandemic levels, it said. It added said that the non-cigarette FMCG business, despite the unprecedented increase in prices of key inputs, performed well during the quarter.
So far this year, ITC shares have rallied over 25 percent and most market experts see up to 20 percent further upside going forward. As per analysts, stable taxation on cigarettes is expected to drive volumes. Further, the recent spurt in global agri prices is also likely to aid growth.
Let's take a look at what the brokerages have to say about the FMCG major post its results:
Prabhudas Lilladher: Buy | Target price: ₹305 | Upside: 14%
As per the brokerage, ITC posted resilient performance with 8.75 percent cigarette volume growth and margin expansion across cigarettes, paperboard and FMCG business. Hotels improved but still remain in the red. Prabhudas Lilladher said that the firm's near term outlook remains positive given, positive cigarette volume traction considering a stable tax regime; strong pricing and benefits of backward integration in paperboard; benefits of supply chain disruption in leaf tobacco and strong wheat exports; gradually improving occupancy levels in hotels; and, sustained growth across core segments in FMCG with steady margin expansion.
While the brokerage expects near-term margin pressure in FMCG, strong traction in other businesses is expected to enable ITC to sustain double-digit profit growth. It maintains a ‘buy’ rating on the stock and increased its target price to ₹305 from ₹285 earlier.
Sharekhan: Buy | Target price: ₹320 | Upside: 20%
Sharekhan stated that cigarette sales volume is expected to improve in the coming quarters.
"ITC has enhanced focus and redefined growth strategies for all business verticals to improve prospects in the medium to long term. Strong earnings visibility with improving prospects of core cigarette business, margin expansion in non-cigarette FMCG business and a high cash generation ability with strong dividend payout (dividend yield of 4.3% in FY22) will reduce valuation gap in coming years,” it said. The brokerage has a ‘buy’ call on the stock with a revised price target of ₹320.
ICICI Direct: Buy | Target price: ₹310 | Upside: 16%
ITC’s share price has underperformed the FMCG index with a negative 6.8 percent return (from ₹286 in May 2017 to ₹267 in May 2022), ICICI noted. The brokerage expects cigarette volumes, price growth in the FMCG business and strong agri exports to drive revenues for the company in the future. It upgraded the stock rating from ‘Hold’ to ‘Buy’. “We value the stock at ₹310 on SOTP basis valuing cigarettes business 15x FY24 earnings & FMCG business 6x FY24 sales,” it said.
Motilal Oswal: Neutral | Target price: ₹265
The brokerage said that in the ongoing environment where material cost inflation is a worry, ITC’s resilient Cigarette margins render relatively better near-term visibility versus its peers.
“Longer-term re-rating though will depend on diversification from cigarettes (81 percent of FY22 EBIT) and whether sustained earnings growth returns to the late-teen levels seen in the first half of the last decade. We value ITC at a 15 percent premium to the global cigarette peer average, targeting 17x FY24E EPS, to arrive at our TP of ₹265,” it noted. It has a ‘Neutral’ call on the stock.