FMCG-major ITC beat analyst estimates to report a 24.4-percent year-on-year (YoY) jump in its consolidated net profit at ₹4,620 crore in the September quarter (Q2FY23). In the year-ago period, the firm reported a profit of ₹3,714 crore. Its net revenue also rose 24.4 percent YoY to ₹17,108 crore in Q2FY23.
Sequentially, the net profit was up 5.2 percent while the net revenue was down 7.5 percent.
The company said that the robust performance was on the back of a strong and broad-based growth across markets and channels.
"Economic activity continued to gain momentum during the quarter, along with improvement in business and consumer sentiment. Input prices remained elevated, even as some commodities witnessed softening in the course of the quarter," said ITC.
Inflationary headwinds continued to weigh on consumption expenditure, which was partly offset by the early onset of the festival season this year in some parts of the country, it added.
Revenue from cigarettes stood at ₹7,635.38 crore, compared with ₹6,219.84 crore a year ago. The company said that stability in taxes on cigarettes, backed by deterrent action by enforcement agencies, enabled continued volume recovery from illicit trade.
Meanwhile, Revenue from the non-cigarette fast-moving consumer goods segment was at ₹4,894.26 crore in Q2FY23, against ₹4,043.83 crore a year ago.
Stock price trend
Post the earnings, the stock gained over 1 percent in intra-day deals to hit its 52-week high of ₹354 on Friday.
ITC has massively outperformed its benchmark in the last 1 year, rising nearly 47 percent versus an 11.5 percent jump in the Nifty FMCG index. Only Varun Beverages (up 84 percent), in the FMCG space, rallied more than ITC in the last 1 year.
Meanwhile, in 2022 YTD, ITC surged nearly 60 percent, the second-best performing FMCG stock, again after Varun Beverages, which soared 72 percent.
The stock has consistently given positive returns each month since March 2022. In the 10 months of 2022, it was red only in February, when it fell 2 percent.
It gained the most in March 2022, up 16 percent followed by July, up 11 percent. In October so far, the stock is up nearly 5 percent.
Brokerage views
Brokerages remained bullish on ITC post its September quarter earnings on the back of a robust near-term outlook, strong cigarette volume growth and margin expansion across the board - cigarettes, paperboard and hotels business.
Motilal Oswal
ITC’s sales growth momentum was better than expected across businesses in Q2FY23. Estimated Cigarette volume growth of 21 percent YoY was a positive surprise and resulted in a three-year volume CAGR of 5.1 percent, pointed out the brokerage. The higher-than-expected contribution from the high-margin Cigarettes business resulted in a 250 bps beat on our EBITDA margin estimates, which came in at 36.4 percent, it added.
As per the brokerage, the strong earnings momentum is being driven by a healthy performance from Cigarettes in a stable tax environment, strong recovery in Hotels business profitability, and continued good performance of FMCG-Others. Allied with better capital allocation and continued healthy dividend payouts, the path towards high 20’s/early 30s RoE is visible, predicted MOSL.
"The stock has done well with a 33 percent gain since our upgrade to Buy call in Jun’22 and we believe there is further scope for upside based on its healthy earnings outlook," said the brokerage. It maintained a 'buy' call on the stock with a target price of ₹400, implying an upside of 14 percent.
Axis Capital
"ITC delivered another quarter of healthy performance and a modest beat. Cigarette volume acceleration (up 22 percent YoY), over 20 percent revenue growth in FMCG business and sustained swing in profitability in Hotels and Paperboards were the key highlights," said Axis. It raises FY23-25E EPS by 4 percent to bake in beat/ solid traction across businesses.
It retained an add rating on the stock and revised the target price to ₹375 (EPS upgrade, rollover to Sept-24E and a shade higher valuation to cigarette business given strong growth) from ₹335. The new target implies a 7 percent upside in the stock.
"Consistent revenue acceleration across business segments coupled with healthy margin delivery over the past several quarters is quite impressive. We are particularly enthused with cigarette volume acceleration which is indicative of ITC’s execution prowess," stated the brokerage.
JM Financial
As per the brokerage, ITC’s Q2FY23 report is as good as it gets – in a positive way. For yet another quarter, momentum in all the business segments moved in the same (right) direction, it noted.
"Strong volume growth of over 20 percent in the cigarettes business was helped not only by increased socialising occasions post the pandemic but importantly, also by volume recovery from the illicit trade on the back of a stable taxation environment; of course, product innovations, enhanced accessibility and a strong execution machinery also played their roles. FMCG grew 21 percent - likely the highest growth amongst peers once again – with just a very small hit on margin
despite the huge surge in commodity costs seen across the board. Hotels, Agri and especially Paperboards successfully leveraged the cyclical tailwinds in their respective sectors. Non-cigarette EBIT grew 48 percent - 2x the rate of growth in Cigarette EBIT which itself was quite strong," analysed JM. The stock has gained strong momentum in recent months (+60 percent YTD) but still offers a 3.7 percent dividend yield at CMP. The brokerage expects September quarter earnings to help support ITC’s re-rating.
The brokerage has a 'buy' call on the stock with a target price of ₹395, up 5 percent from the previous target price of ₹375. The new target price implies an upside of 13 percent.
ICICI Securities
According to the brokerage, ITC continued its growth momentum across categories in Q2FY23. The cigarettes category has benefited from stable taxation, market share gains with aggressive trade promotions and newly launched premium brands in the last one year. FMCG business is witnessing strong growth specifically in the underpenetrated foods category & strong traction from education & stationary business (fully functional education institutions have propelled growth after two years), it noted.
ICICI believes ITC would continue to grow in its core business of Cigarettes and FMCG with stable taxation & softening of raw material prices. It remains positive on ITC from a long-term growth perspective. It maintains BUY call on the stock with the revised target price on the stock to ₹405 per share from earlier ₹360 per share. The new target implies an upside potential of 16 percent.
