ITC hits new high, up for the 5th straight day; soars 32% so far in 2023

Analysts raised their cigarette volumes growth estimate for FY24E considering market share gains from illicit cigarettes as well as strong growth in high price cigarettes.

Shares of ITC hit a new high of Rs 440, up 1.5 per cent on the BSE in Thursday’s intra-day trade. The stock of biggest cigarettes & second largest fast moving consumer goods (FMCG) company trading higher for the fifth straight day, and has rallied 5 per cent in this period. In comparison, the S&P BSE Sensex was down 0.08 per cent at 61,726 at 09:44 AM.

Thus far in the calendar year 2023, ITC has outperformed the market by surging 32 per cent, as against 0.73 per cent rise in the benchmark index on strong earnings.

ITC’s results for the January-March quarter (Q4) were strong, with robust growth in the FMCG segment and a good performance in hospitality. The tobacco division’s performance was on expected lines, with double-digit volume growth, helped by reclaiming of market share from the smuggled trade. There was 60 per cent growth in non-cigarette earnings before interest and tax (Ebit), despite a relatively weak performance in paperboards.

ITC reported 6.1 per cent growth in sales to Rs 17,220 crore, 18.9 per cent in earnings before interest, tax, depreciation and amortisation (Ebitda) to Rs 6,210 crore, and 20.1 per cent in adjusted profit after tax (PAT) to Rs 5,030 crore.

Analyst at ICICI Securities raised their cigarette volumes growth estimate from 5 per cent to 8 per cent for FY24E considering market share gains from illicit cigarettes as well as strong growth in high price cigarettes. Taxation (GST & Excise) on cigarettes has remained largely stable over the last five years. This along with deterrent action against illicit & contraband cigarettes resulted in strong ~19 per cent volume growth in FY23.

FMCG business has seen four-year sales CAGR of 11.2 per cent, which is faster compared to many other FMCG companies. The brokerage firm believes foods portfolio has strong opportunity size with high margin expansion possibility. The company intends to increase margins by 100-150 bps every year.

Hotels business occupancy levels have been maintained at above 70 per cent & ARRs are above pre-pandemic levels. We believe the company would be able to maintain this strong growth in hotels business in medium term, are key triggers for future price performance. The brokerage firm maintains ‘buy’ rating on the stock with target price of Rs 500 per share.

Analyst at BNP Paribas increased their FY24/FY25 EBITDA estimates by 3 per cent/2 per cent, backed by an improving operating profitability outlook for key divisions. This leads to a 3 per cent rise each in the brokerage firm’s earnings estimates for FY24-25. ITC announced a special dividend and the payout crossed 100 per cent with an attractive 4 per cent dividend yield. It maintains BUY with a higher SoTP- based target price of Rs 480.

Meanwhile, ITC’s board has recommended final dividend of Rs 6.75 and special dividend of Rs 2.75 per share for the financial year ended March 31, 2023. The company has fixed Tuesday, May 30, 2023 as the record date for the purpose of determining entitlement of the members for payment of dividend.

Technical View

 

Bias: Positive

Target: Rs 449; Rs 456

Support: Rs 436.50

Resistance: Rs 444

ITC is on the verge of logging gains for the fifth straight month, up 3.5 per cent so far this May. The stock is currently seen testing the higher-end of the Bollinger Bands on the monthly chart at Rs 443.

As per the monthly Fibonacci chart, the stock has near resistance at Rs 444, above which it can test Rs 449 - Rs 456.

On the daily scale, the stock is seen trading above the higher-end of the Bollinger Bands. Charts suggest that the near-term bias is likely to remain bullish as long as the stock sustains above Rs 436.50.

(With inputs from Rex Cano)