ITC gains 4% ahead of March quarter results on Wednesday

Shares of the cigarettes to fast moving consumer goods (FMCG) major ITC moved higher by 4 per cent to Rs 264 on the BSE in Tuesday’s intra-day trade ahead of its March quarter earnings on Wednesday. The stock had hit a 52-week high of Rs 273.10 on April 11, 2022.

The board of ITC is scheduled to meet on May 18, 2022, to consider audited financial results for the quarter and year ended March 31, 2022. The board will also consider the recommendation of final dividend for the aforesaid financial year," the company said in an exchange filing. Earlier, ITC had paid an interim dividend of Rs 5.25 per equity share of Re 1 each for the financial year 2021-22.

The stock has outperformed the market in recent past with a wide margin after the company reported a good set of December quarter results (Q3FY22), healthy earnings during recently concluded quarter and strong outlook.

In the past one month, the stock has declined 2 per cent, as compared to a 7.5 per cent decline in the S&P BSE Sensex. Meanwhile, in the past three months, the stock has rallied 18 per cent, as against a 7 per cent decline in the benchmark index. Further, the stock has surged 24 per cent in the last one year, as compared to 9 per cent rise in the Sensex.

ITC is better-placed than peers with improving cigarette performance and strong earnings visibility. Analysts expect ITC to report a relatively stronger quarter, with improvement in cigarettes and other divisions and lesser margin pressure compared to FMCG peers.

“We expect cigarette earnings before interest tax (EBIT) to grow by 13 per cent YoY (+8 per cent in Q4FY21 and +14 per cent in Q3FY22). We model other FMCG EBIT margin at 6 per cent (5.1 per cent in Q4FY21 and 5.9 per cent in Q3FY22),” analysts at HDFC Securities said in results preview.

The brokerage firm models 12 per cent YoY growth in cigarette revenue (+7 per cent in Q4FY21 and +14 per cent in Q3FY22), with a volume growth of 10 per cent YoY (+8 per cent in Q4FY21 and +13 per cent in Q3FY22).

ICICI Securities expect cigarette companies (ITC, VST) to see 7 per cent & 10 per cent volume growth, respectively, with volumes surpassing preCovid levels given offices, restaurants, pubs are completely open after lifting of all mobility restrictions. With the high dividend payout, other income is likely to significantly come down for ITC.

The brokerage firm expects strong revenue growth of 21.5 per cent for ITC led by strong recovery in cigarette business and robust growth in agri, paperboard & hotels business. “We estimate 9.2 per cent sales growth in cigarette sales with 7 per cent volume growth. We expect 83.6 per cent growth in hotels business with strong occupancies & growth in ARRs. We estimate 13.1 per cent growth in FMCG sales largely led by price hikes & recovery in education & stationary business,” ICICI Securities said in result preview. The brokerage firm estimates 76 bps contraction gross margins & 10.7 per cent growth in profitability adversely impacted by lower other income (ITC increased dividend payout).