ITC's share price has been an outperformer so far in 2022. This came at a time when the benchmark indices, the BSE Sensex and Nifty 50, traded on a weak note and pointed to the downside towards their respective 52-week lows.
The stock hit a 52-week high of ₹282.35/share in May and has risen 23 per cent so far this year.
Going by the projections made by analysts at Ventura Securities, the stock may still have a long way to go.
ITC has a diversified presence in cigarette packs, hotels, paperboards and speciality papers, packaging, agri-business, packaged foods and confectionery, information technology, branded apparel, personal care, stationery, safety matches and other FMCG products.
ITC Ltd. has been a stark underperformer over the last few years. Venture Securities believes that this is set to change. Having achieved critical scale, the FMCG business, which has been dragging profitability, is expected to witness robust growth (16% CAGR to INR 22,729 cr) with improving margins (+290 bps to 8.6%). Increased migration toward sustainable packaging and post-pandemic revenge travel should help boost revenue growth and profitability in both verticals.
The agri-commodity business prospects have sharply improved post the Ukraine invasion, and the IT vertical is expected to continue its strong double-digit revenue growth with top percentile margins.
The market has not taken cognizance of the fact that ITC’s FY24 EBIT of INR 24,613.5 cr is expected to be more than 1.6X that of HUL (which is the 2nd most profitable listed consumer player) and equal to the combined EBIT of the next 4 players, said Ventura Securities.
The brokerage house believes that this dominance should result in a re-rating of the stock as the growth story unfolds. Another kicker for the valuation re-rating is the potential demerger plan as outlined in the Dec-21 corporate communication.
Financials
ITC Limited posted a consolidated net profit of ₹4259.68 cr for the quarter ended March 31, 2022, which was up 11.6 per cent year-on-year (YoY) as against ₹3816.84 cr reported during the corresponding quarter in the year-ago period.
The revenue from operations for Q4 of FY2022 stood at ₹17,754.02 cr versus ₹15,404.37 cr, which was up nearly 15 per cent YoY.
| Financials ( ₹in Cr) | Mar-2022 | Dec-2021 | Sep-2021 | Jun-2021 |
| Revenue | 17,754.02 | 18,365.80 | 14,844.38 | 14,240.76 |
| Other Income | 498.62 | 421.92 | 468.77 | 447.04 |
| Total Income | 18,252.64 | 18,787.72 | 15,313.15 | 14,687.80 |
| Total Expenditure | 12,154.62 | 12,768.13 | 9,826.78 | 9,797.02 |
| PBDT | 6,087.31 | 6,010.03 | 5,476.62 | 4,881.44 |
| PBT | 5,620.35 | 5,580.44 | 5,054.89 | 4,467.31 |
| Profit After Tax | 4,259.68 | 4,118.80 | 3,763.73 | 3,343.44 |
The cigarette segment generated ₹7,177 crore in revenue during the fourth quarter, up from ₹6,508 crore in the same period last fiscal. The FMCG division had a revenue of ₹4148.62 crore as against ₹3694.80 crore in the year-ago quarter.
The Agri business registered a revenue of ₹4,375.42 crore as against ₹3,383 crore in Q4 FY21. Paperboards, paper and packaging revenue stood at ₹2,182.77 crore in the fourth quarter as against ₹1,655.91 crore in the same period last year.
For the fiscal ended March 31, 2022, ITC reported a consolidated net profit of ₹15,485.65 crore compared to ₹13,389.8 crore in 2020-21.
Outlook
Ventura Securities has given a 'BUY' rating, with a target price of ₹350/share, representing an upside of 28.3% over the next 18 months from the CMP of Rs. 272. In the bull case scenario, ITC's stock price is projected to scale to ₹423 per share. "We have assumed Rs. 91,859.8 cr of sales in FY24E (CAGR of 20%), a PAT Margin of 23.8%, along with the marginal re-rating to 23.8X FY24E P/E, which will result in a Bull Case price target of Rs. 423 per share," analysts said. The bear case target pins the target at ₹287 per share.
Future Plans
ITC plans to invest around $2 billion (around ₹14,851 crore) as part of its' ITC Next’strategic, under which it will explore opportunities to craft "disruptive business models," said ITC Chairman Sanjiv Puri, in a virtual press conference.
Besides, ITC is also looking for acquisitions as part of its expansion plans, the spending on which will be over and above its planned investment, he added.
An average of 34 analysts polled by MintGenie have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
