ITC hits 52-week high on hopes of strong Q1 nos; soars 36% thus far in 2022

ITC is expected to post strong 23.3% revenue growth led by 21.8% growth in the cigarettes business, 28% growth in paperboard business & 17.5% growth in FMCG business, ICICI Securities said.

Shares of ITC hit a fresh 52-week high of Rs 296.65 as the stock gained 1 per cent on the BSE in Monday’s trade on expectations of strong earnings in the June quarter (Q1FY23) led by healthy volume growth in cigarettes business. In comparison, the S&P BSE Sensex was down 0.51 per cent at 54,203 points, at 12:15 pm.

So far in the calendar year 2022(CY22), ITC has outperformed the market by surging 36 per cent as against an 8.5 per cent decline in the Sensex. The stock had hit a record high of Rs 353 on July 3, 2017

Apart from having a near monopoly in its 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 through its wide-reaching agribusiness, and a pre-eminent hotelier in India with chain of luxury hotels.

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

ITC is expected to post strong 23.3 per cent year on year (YoY) revenue growth led by 21.8 per cent growth in the cigarettes business, 28 per cent YoY growth in paperboard business and 17.5 per cent YoY growth in FMCG business, ICICI Securities said in its Q1 result preview.

"The strong growth in cigarette business is mainly on account of recovery in cigarette volumes to the pre-Covid levels. The growth in paperboard business is contributed by high volumes from low base quarter & strong pricing growth given paper prices globally have gone up sharply due to energy shortage in Europe. The growth in FMCG business is likely to be aided by recovery in stationary business and pricing growth in foods, personal care businesses. Agri business sales is expected to be flat given wheat export was banned during the quarter & hotels business is expected to clock pre-Covid sales in Q1", the brokerage said.

A revival in cigarette demand, recovery in some profitable FMCG-other 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, according to Motilal Oswal Financial Services.

We expect an 11 per cent volume growth in cigarettes and gross margin expansion of 190 bps YoY on better cigarette mix and reduction in lag from hotels. The key monitorables include cigarettes volume and hotels revenue post opening of workplaces and an increase in travel. Outlook on the agri, paper & packaging and hotel businesses will also be watched out, the brokerage firm said in its results preview.