ITC hits new high on solid Q2 performance; analysts see up to 16% upside

Analysts believe ITC would continue to grow in its core business of Cigarettes and FMCG with stable taxation & softening of raw material prices.

Shares of ITC hit an all-time high of Rs 354, up 1 per cent on the BSE in Friday’s intra-day trade after the company reported solid earnings for the September quarter (Q2FY23).

The stock surpassed its previous high of Rs 353, which it touched on July 3, 2017. Thus far in the calendar year 2022 (CY22), ITC has outperformed the market by zooming 62 per cent, as compared to 0.53 per cent rise in the S&P BSE Sensex.

Tobacco-to-hotels major ITC on Thursday reported 24.4-per cent year-on-year (YoY) jump in its consolidated net profit for Q2FY23, which came in at Rs 4,620 crore. In the year-ago period, profit was at Rs 3,714 crore. Net revenue at Rs 17,108 in crore in Q2FY23 was up 24.4-per cent YoY. The company attributed the performance to strong and broad-based growth across markets and channels. READ MORE

The strong revenue growth led by splendid growth in cigarettes, FMCG & paperboard segments. Agri & hotels business also grew at stronger pace on the back of lower base quarter sales. Cigarettes business sales were up 23.3 per cent YoY led by 20 per cent volume growth & 3 per cent product mix improvement. Stable taxes & action on illicit cigarettes by enforcement agencies is driving volume growth.

According to ICICI Securities, ITC continued its growth momentum across categories in Q2FY23. The cigarettes category has been benefited by stable taxation, market share gains with aggressive trade promotions and newly launched premium brands in last one year. FMCG business is witnessing strong growth specifically in underpenetrated foods category & strong traction from education & stationary business (fully functional education institutions have propelled growth after two years).

“We believe ITC would continue to grow in its core business of Cigarettes and FMCG with stable taxation & softening of raw material prices. We remain positive on ITC from long term growth perspective,” the brokerage firm said in result update. It maintains BUY recommendation on ITC with the revised target price on stock to Rs 405 per share from earlier Rs 360 per share.
A stable tax environment for Cigarettes in recent years has allowed ITC to calibrate price increases to avoid a disruption in demand. We expect this trend to continue, which should result in improved Cigarette volumes and earnings visibility over the medium term, Motilal Oswal Financial Services said in result update.

“We are positive on ITC fueled by a better-than-expected demand recovery and a healthy margin outlook in Cigarettes, healthy sales momentum in the FMCG business, smart recovery from the Hotels business, and better capital allocation in recent years,” the brokerage firm said and believe there is further scope for upside based on its healthy earnings outlook. It maintains BUY rating on ITC with a target price of Rs 400 per share.