ITC hits over 2-year high on strong earnings hope; up 25% thus far in 2022

Analysts expect ITC to report a relatively stronger quarter, with the improvement in cigarettes and other divisions and lesser margin pressure compared to FMCG peers.

Shares of ITC hit an over two-year high of Rs 273.10, up nearly 2 per cent on the BSE on Monday in an otherwise weak market. The stock has rallied 6 per cent in the past two sessions on expectation of strong earnings due to improved cigarette volumes.

The share price of the cigarettes to fast moving consumer goods (FMCG) major was trading at its highest level since July 2019. In comparison, at 01:11 pm, the S&P BSE Sensex was down 0.42 per cent at 59,196 points.

Thus far in calendar year 2022, ITC has outperformed the market by surging 25 per cent, as compared to a 1.6 per cent rise in the S&P BSE Sensex. It had hit a record high of Rs 353 on July 3, 2017.

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.

Analysts at Emkay Global Financial Services estimate steady cigarette performance with sales/EBIT growth of 9 per cent/10 per cent. FMCG sales growth will be 9 per cent with margins staying flat year-on-year (YoY).

“We estimate strong performance in paper and agri with EBIT growth of 11 per cent/38 per cent and EBIT breakeven for hotels.  Profit after tax growth is lower at 8 per cent due to lower other income and higher effective tax rate (ETR),” the brokerage said in a Q4 preview.

Analyst at ICICI Securities expect cigarette companies (ITC, VST) to see 7 per cent & 10 per cent volume growth, respectively, with volumes surpassing pre-Covid levels given offices, restaurants, pubs are completely open after lifting of all mobility restrictions.

Moreover, robust wheat export due to Russia Ukraine crisis is likely to benefit ITC’s agri business sales, they said.

“We expect 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,” ICICI Securities said in a FMCG sector Q4 result preview.

The brokerage also expects 69.5 per cent growth in agribusiness with opportunity in wheat exports after Russia-Ukraine crisis. Paperboard business may see 28.9 per cent sales growth with complete recovery in user industries.

“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. We estimate 76 bps contraction gross margins & 10.7 per cent growth in profitability adversely impacted by lower other income (ITC increased dividend payout),” the brokerage said.