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What should investors do with ITC: buy, sell or hold post Q1 earnings?

ITC reported a 28.6 percent year-on-year growth in standalone profit at Rs 3,013.5 crore in the quarter ended June 2021, partly driven by a low base in the year-ago quarter

July 26, 2021 / 09:41 AM IST
 
 
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ITC share price rose a percent in the early trade on July 26 after the cigarette-to-hotels major has reported a 28.6 percent year-on-year growth in standalone profit at Rs 3,013.5 crore in the quarter ended June 2021, partly driven by a low base in the year-ago quarter. The profit was at Rs 2,342.76 crore in the year-ago quarter.

Revenue from operations in Q1FY22 increased 36.4 percent year-on-year to Rs 12,959.15 crore and revenue (excluding excise duty) jumped 37.1 percent YoY to Rs 12,217.13 crore during the quarter.

The topline was led by cigarettes, FMCG and paper segments.

Also read: ITC Q1 profit rises 28.6% to Rs 3,013.5 crore, revenue jumps 36.4% to Rs 12,959 crore

Here is what brokerages have to say about the stock and the company post-June quarter earnings:

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Citi | Rating: Neutral | Target: Rs 210

The broking house has kept a neutral call on the stock as operationally there were no major surprises in Q1 results across various segments.

Its revenue & EBITDA grew 37% & 51%, respectively, on a very low base of last year. The lower other income led to a weaker-than-expected profit of Rs 3,010 crore versus estimates of Rs 3,230 crore.

CLSA | Rating: Buy | Target: Rs 265

CLSA has maintained a buy rating as with a steady expansion in its margin and a reduction in capex, the K-shaped trend will continue.

Also, with expected normalcy, it sees a recovery in ITC’s overall business and margin profile.

The cigarette EBIT margin expanded 210 bps YoY, which was aided by positive operating leverage and holds potential for further expansion. The other FMCG revenue growth was in-line at 10 percent; FMCG margin at 8 percent, expanded 40 bps YoY.

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Morgan Stanley | Rating: Overweight | Target: Rs 251

Morgan Stanley remains overweight on the stock as revenue and profits were ahead of estimates

The cigarette volumes were up 33 percent YoY ahead of the consensus of 24-28 percent. The earnings beat led by better-than-expected performance in all businesses except FMCG. Its other expenses fell 15 percent QoQ, aided by ITC's cost control initiatives.

Prabhudas Lilladher | Rating: Buy | Target: Rs 258

We are marginally decreasing FY22/23 EPS estimates by 2 percent/1.2 percent on account of lower other income which halved during the first quarter. Cigarette volumes recovery has been impacted due to restrictions in Kerala, Odisha and NE and recovery is expected to be slower than expected. FMCG margins have seen benefits of higher scale, rigorous cost control, closer to market production units and rising direct coverage. The trend is expected to continue.

Paperboard has gained margins in inflationary input cost scenario due to backward integration and medium-term outlook remains intact. We expect the hotel business recovery to be delayed due to the second wave, however, traction at leisure locations bodes well for the company.

Agribusiness outlook looks good for the near term as supply chain has been restored and recovery in leaf tobacco exports has improved the sales mix.

Sharekhan | Rating: Buy | Target: Rs 265

We have broadly maintained our earnings estimates for FY2022 and FY2023. With easing of lockdown restrictions in most states, cigarette business sales volume are expected to improve in the coming quarters. Management’s enhanced focus and redefined growth strategies have aided the scaling up of the non-cigarette FMCG business margins.

Any sustained scale-up in the margins of the cigarette business, coupled with normalisation in the core cigarette business, would be key triggers for valuation uptick.

ICICI Direct | Rating: Hold | Target: Rs 240

ITC’s share price has underperformed the index with a 16 percent negative return in the last five years (from Rs 250 in July 2016 to 212 in July 2021).

We roll over to FY24 numbers with greater visibility of FMCG business margins and estimate complete recovery in the cigarettes business in FY23-24. We continue to maintain our hold rating on the stock.

At 0918 hours, ITC was quoting at Rs 213.10, up Rs 0.75, or 0.35 percent, on the BSE.

The share touched a 52-week high of Rs 239.15 on February 9, 2021 and a 52-week low of Rs 163.40 on October 29, 2020.

It is trading 10.89 percent below its 52-week high and 30.42 percent above its 52-week low.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Jul 26, 2021 09:41 am

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