scorecardresearchStock analysis: Will ITC continue to outperform in 2022?
ITC is rapidly gaining market share in packaged foods and confectionery, branded apparel, personal care products, and stationery.

Stock analysis: Will ITC continue to outperform in 2022?

Updated: 21 Apr 2022, 08:06 AM IST
TL;DR.
The company's cigarette business, which had been one of the most hit in the previous two years owing to COVID-19 disruptions, announced a strong rebound in the October-December quarter (Q3FY22).

ITC Ltd is one of India's foremost private sector companies. The company has 13 businesses in 5 segments. It exports  products to 90 countries. ITC products are available in 6 million retail outlets in India.

ITC was incorporated on August 24, 1910, under the name Imperial Tobacco Company of India Ltd. As the company's ownership progressively Indianized, the name of the company was changed from Imperial Tobacco Company of India Ltd. to India Tobacco Company Ltd. in the year 1970 and then to I.T.C. Ltd. in the year 1974.

ITC was the first company in India to voluntarily seek a corporate governance rating.

Product Portfolio

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's wholly owned information technology subsidiary, ITC Infotech India Ltd., provides IT services and solutions

 

Revenue Split of ITC
Revenue Split of ITC

The company is rapidly gaining market share even in its nascent businesses of packaged foods and confectionery, branded apparel, personal care products, and stationery.

Opportunity

"The Russia-Ukraine war has resulted in sharp inflation in wheat prices (up 18–20% YoY) in Q4 FY22 as both countries account for 25% of the global wheat supplies. Soaring wheat prices and volume growth (diverted to India) will benefit ITC.In Q3FY22, agri-business grew 2x to 4,960 Cr, while EBIT grew 51% YoY, aided by strong growth in wheat, rice, spices, and leaf tobacco exports, which will likely continue in Q4FY22, "says Axis Securities in a research report.

Going forward, the report expects the ITC Hotel segment to register strong revenue growth and margin recovery, as leisure and business travel continues to improve the occupancy rate with lockdowns being lifted across the country.

Furthermore, a revival in end-user industries and exports are expected to drive paperboard sales going forward. However, FMCG Others (6% of FY21 EBIT) is expected to see near-term challenges on account of the rural slowdown and inflation in key raw material prices, it added.

Axis Securities believes ITC will maintain its volume growth momentum (forecast 9–10% volume growth) in Q4FY22, supported by no tax increase on cigarettes in the Union Budget 2022, which will help the business compete with illicit cigarettes.

Deals

In May 2020, ITC announced the acquisition of Sunrise Foods, which is one of the largest spice brands and the market leader in West Bengal and East. The 2150 crore deal was made by ITC on a 'cash-free, debt-free basis.

Sunrise Foods Private Limited is a Kolkata-based family-owned company engaged primarily in the business of spices, and analysts believe this acquisition will help ITC augment its portfolio in the segment where it is present with its brand Aashirvaad.

Sunrise Foods in 2019-20 clocked 591.5 crore in sales.

Financials

ITC reported a standalone net profit of 4,156.20 crore for the December quarter, up 12.69 per cent against a profit of 3,687.88 crore in the same quarter last year.

Revenue from product sales was 16,633.86 crore, up 31.25 percent from 12,673.31 crore in the same quarter last year.

 Segment RevenueQ3FY22Q3FY21YoY Growth %Q2FY22 QoQ Growth %
 FMCG10,3359,24211.89,6786.8
 - Cigarettes6,2445,49813.65,64210.7
 -Others4,0913,7449.34,0361.3
Paperboards, Paper&Pack2,0461,47838.51,83011.8 
Agri Business4,9622,482100.02,77678.8
Hotel473235101.329560.6
Inter -Segment(1,183)(763)(55.0)(1,223)3.2
Total Revenue16,63412,67331.313,35624.5
Source: Geojit Equity Research     

ITC’s cigarette revenue stood at 6,244.11 crore for the quarter, growing 13.56 percent compared to the year-ago period.

Revenue from other FMCG businesses reported 4,090.56 crore, up 9.26 per cent.

Stock Performance

The stock was trading near its 52 week high of 273.15 last week. ITC Stock price has zoomed 18.65% in the last 3 months.

Stock Movement of ITC
Stock Movement of ITC

Edelweiss Wealth research says that there is a strong possibility of trend reversal and the stock may go up to 450 apiece levels in long term.

Future Plans

ITC plans to invest around $2 billion (around 14,851 crore) as part of its ‘ITC Next’ strategy, 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.

ITC set an internal target of generating 65,000 crore from packaged foods by 2030 to reach its goal of 1 trillion in revenue from its non-cigarette business, Mint reported.

Outlook

Axis Securities initiates coverage on ITC with a ‘BUY’ recommendation and a Target Price (TP) of 295/share, implying an upside of 10% from the CMP.

An average of 34 analysts polled by MintGenie have a 'strong buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

The FMCG sector is likely to reach  <span class='webrupee'>₹</span>16.3 lakh-crore by 2025.
The FMCG sector is likely to reach 16.3 lakh-crore by 2025.