ITC hits over 3-year high as FPIs hike stake; stock up 40% so far this year

FPIs holding in ITC increased to 12.68% in June quarter from 11.99% in the preceding quarter and 9.99% at the end of December quarter.

Shares of ITC hit over three-year high of Rs 304.70, up nearly 1 per cent on the BSE on Wednesday’s intra-day trade. The stock has surged 13 per cent in the past one month on hopes of healthy earnings coupled with stock buying by foreign investors.

So far in the calendar year 2022 (CY22), ITC has outperformed the market as it soared 40 per cent on foreign portfolio investor's (FPIs) buying spree. In comparison, the S&P BSE Sensex was down 6 per cent, during the same period. Earlier, the stock had hit a record high of Rs 353 on July 3, 2017.

That said, FPIs have hiked their stake in ITC for the second straight quarter. They bought additional 2.69 percentage point stake in the diversified fast moving consumer goods (FMCG) company during the first six months of CY22.

As of June 30, 2022, FPIs holding in ITC increased to 12.68 per cent from 11.99 per cent at the end of March 2022 quarter (Q1CY22). Likewise, on December 31, 2022 (Q4CY21), FPIs held 9.99 per cent stake in ITC. Data shows that the FPI holding in ITC was at highest level since March 2021 quarter, when they held 12.79 per cent stake in the company.

However, individual shareholders reduced their stake in ITC to 44.50 per cent in Q2CY22 from 45.24 per cent in Q1CY22.

Apart from having a near monopoly in traditional business of cigarettes, ITC is also India's leading FMCG marketer, a clear market leader in the Indian paperboard and packaging industry, globally acknowledged in farmer empowerment, too, through their wide-reaching agri-business. They are also a pre-eminent hotelier in India with chain of luxury hotels.

Meanwhile, the board of directors of ITC is scheduled to meet on Monday,  August 1, 2022, to consider and approve the financial results of the company for the quarter ended June 30, 2022 (Q1FY23).

The company’s cigarettes business staged a broad-based recovery as volumes surpassed pre-pandemic levels. A stable tax environment for cigarettes in recent years allowed ITC to calibrate price increases to avoid disruption in demand. The non-cigarette FMCG business performed well through focused cost management interventions across value chain, premiumisation, and judicious pricing actions.

Analysts at Motilal Oswal Financial Services believe that revival in cigarette demand and recovery in FMCG businesses make ITC an attractive investment bet. "A revival in cigarette demand, recovery in some profitable FMCG-Others categories, and a reduced lag in the hotels business coupled with lower input cost pressures than peers and attractive valuations make ITC a top pick from a one-year perspective," the brokerage firm said.

For Q1FY23, the brokerage firm expects 11 per cent volume growth in cigarettes business and expects expansion of gross margin expansion by 190 basis points (bps) YoY on better cigarette mix and reduction in lag from Hotels. Analysts foresee cigarette volumes, hotel revenues post reopen theme, travel resumption, agricultural outlook as key themes going ahead. 

Besides, analysts at Antique Stock Broking expect ITC’s revenue to increase 12 per cent YoY driven by double digit growth in cigarette and strong performance in other businesses.

"FMCG to report double digit revenue growth with stable margin. Overall ITC profitability to improve due to favourable mix cigarette, recovery in hotels and strong performance in value added paper products," the brokerage firm added.