ITC rallies on strong Q4 results, nears 3-year high in a weak market

Shares of ITC surged 4.7 per cent to an intraday high of Rs 279.15, hitting almost a three-year high, even as markets were weak with the S&P BSE Sensex down 2.6 per cent and falling to their lowest levels in 2022. The stock closed 3.4 per cent higher at Rs 275.65.

The gains come after ITC reported strong results, on Wednesday evening, with around 9 per cent cigarette volume growth in the January-March quarter (fourth quarter, or Q4) of 2021-22 (FY22). The board has also recommended a final dividend of Rs 6.25 per share.

The stock of the cigarettes-to-hotels major hit its highest level since July 2019, when it hit a high of Rs 282.95. The counter saw huge trading volumes, with a combined 80.6 million equity shares changing hands on the National Stock Exchange and the BSE.

For Q4FY22, ITC reported 11.7 per cent year-on-year (YoY) increase in consolidated profit after tax (PAT) at Rs 4,196 crore, led by growth across segments. In the year-ago period, PAT was at Rs 3,755 crore. The company’s consolidated revenue from operations was Rs 17,754 crore, up 15.3 per cent, from Rs 15,404 crore in the year-ago period.

Cigarettes staged broad-based recovery, with volumes surpassing pre-pandemic levels. The non-cigarette fast-moving consumer goods (FMCG) business performed well through focused cost management interventions across the value chain, premiumisation, and judicious pricing actions.

“In the ongoing environment, where material cost inflation is a worry, ITC’s resilient cigarette margins render relatively better near-term visibility versus peers. Longer term rerating though will depend on diversification from cigarettes (81 per cent of FY22 earnings before interest and tax, or Ebit) and sustained earnings growth returns to the late-teen levels seen in the first half of the last decade,” said Motilal Oswal Securities.

Analysts at ICICI Securities, meanwhile, said, “ITC’s stock has underperformed the FMCG index with negative 6.8 per cent return (from Rs 286 in May 2017 to Rs 267 in May 2022). We expect cigarette volumes, price growth in FMCG business, and strong agri exports to drive revenues for the company in future.”

Stable taxation on cigarettes is expected to sustain volume growth. Moreover, the company has been gaining market share in cigarettes for the past year through new premium products and aggressive trade promotions, the brokerage firm added.

The company’s FMCG business is growing at a sustained pace with continuous improvement in margins in the past five years. Opportunity size of the existing food portfolio is large, and input cost pressures are relatively lower for ITC, said ICICI Securities. The brokerage firm has upgraded rating on ITC from ‘hold’ to ‘buy’, with target price of Rs 310 per share.

ITC launched over 110 new products across target markets in the FMCG (non-cigarette) business, and has seen strong growth in e-commerce sales in FY22.

Most analysts are positive on the company, whose other businesses, such as hotels and paperboards, are also seeing improvement. For example, paper and paperboard sales grew 32 per cent YoY to Rs 2,183 crore, and its Ebit grew 39 per cent YoY to Rs 450 crore in Q4FY22, while agri business revenue was up 29 per cent to Rs 4,375 crore and Ebit by 32 per cent to Rs 244 crore.

JM Financial said ITC delivered another quarter of strong, all-round beat in its earnings. “Cigarette volumes (up 9 per cent) and profits were both better than our forecasts, and the beat in FMCG was both growth- and margin-driven,” it said

Based on technical analysis, the stock’s immediate target is Rs 283. Further, the quarterly and yearly Fibonacci charts indicate that the stock may face some hurdle around Rs 282-284, above which the next target would be Rs 309. On the downside, trend-line support stays at Rs 250.

ITC’s price-to-moving averages action and momentum oscillators are supportive of the bullish trend.

(With inputs from Nikita Vashisht)