Shares of ITC hit a 3-year high in Thursday’s opening deals after the FMCG major posted a net gain of 12 percent to Rs 4,195 crore for the January-March period, compared to Rs 3,755 crore a year ago. Cigarette-to-hotels stock reached its highest level since July 2019, when it peaked at Rs 282.95. at 9:44 AM; ITC rose 3.8 percent at Rs 276.50 compared to a 2 percent drop in the S&P BSE Sensex. The counter saw huge trading volumes with a combined 28.5 million shares switching hands on the NSE and BSE.
The company attributed its performance to “strong” growth in all segments. Cigarettes saw an overall recovery with volumes surpassing pre-pandemic levels, the company said.
The company further said that despite unprecedented price increases from key inputs, its non-cigarette FMCG business performed well through targeted cost containment interventions across the value chain, premiumization, product mix enrichment and judicious pricing actions. In addition, the reopening of educational institutions helped to recover the production of education and office supplies, although it was still below pre-pandemic levels.
“After a relatively subdued first half, sales in the second half of the year (FY22) showed double-digit growth. Staples and Convenience Foods remained resilient even as the pace of sales growth moderated on a relatively high basis,” the company said, adding that the discretionary/out-of-home categories showed strong growth that surpassed pre-pandemic levels. driven by a gradual improvement in mobility and favorable comparisons.
The ITC board recommended a final dividend of Rs 6.25 per share, including an interim dividend of Rs 5.25 per share. The total dividend for FY22 is Rs 11.50 per share.
“In the ongoing environment where material cost inflation is a concern, ITC’s resilient cigarette margins give relatively better near-term visibility than peers. However, longer-term revaluation will depend on cigarette diversification (81 percent of FY22 EBIT) and whether continued earnings growth returns to the levels seen in the late teens in the first half of the past decade,” Motilal Oswal Financial Services said in a press release. post result report.
Those at ICICI Securities, meanwhile, said: ITC’s share price has underperformed the FMCG index with a negative return of 6.8 percent (from Rs 286 in May 2017 to Rs 267 in May 2022). We expect cigarette volumes, price growth in FMCG business and strong agri-exports to drive the company’s revenues going forward.
JPMorgan analysts have upgraded ITC shares to overweight with a price target of Rs 305 in March 2023. “In our view, ITC offers a good combination of earnings visibility for FY23, strong cash flows and a high dividend yield. We believe the stock should do well in today’s volatile markets as a good defensive game with undemanding valuations,” the note read.
“We largely maintain our FY23/24th EPS estimates. As FMCG peers battle the slowdown and RM pressures, ITC is seeing a recovery in earnings, with good momentum across all verticals and high margin visibility. Higher dividend payments and lower capital expenditures are also encouraging,” said Jefferies. It has maintained the Buy rating on ITC shares with a price target of Rs 305.
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