scorecardITC stock scales 52-week high as brokerages hike target price
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ITC stock scales 52-week high as brokerages hike target price

ITC stock scales 52-week high as brokerages hike target price
Stock Market7 min read
  • ITC has reported a 21% on year rise in net profit to ₹5,031 crore in the third quarter of FY23.
  • Shares of the company have gained over 1% today as analysts gave it a ‘Buy’ rating and increased their target price.
  • Most businesses saw good growth except agri business, which declined 37% on year.
Shares of ITC on Monday scaled a new 52-week high as its robust third quarter performance was cheered by investors and analysts.

This is the second major trigger for the stock’s performance in the recent past. It has gained 9% since the Union Budget was announced. While the Budget did increase National Calamity Contingent Duty 16% for certain cigarettes, this hike was lower than expected by the market.

Even before these two events, the stock has been on a bull run since early December, gaining as much as 13% till date.

Share price of ITC on an uptick since December

Source: BSE

But there is more juice left for investors, if brokerage reports are to be believed. Seven brokerages increased their target price on the stock after the Q3 results. Most of the target prices hover around ₹450 – indicating a 17% upside to its current price.
BrokeragesRating New target price
Morgan StanleyMaintains ‘Overweight’ ₹415
JP MorganMaintains ‘Overweight’₹425
NomuraMaintains ‘Buy’₹455
JefferiesMaintains ‘Buy’₹450
Motilal OswalMaintains ‘Buy’₹450
Phillip CapitalMaintains ‘Buy’₹475
Kotak Institutional EquitiesMaintains ‘Add’₹430
ICICI SecuritiesMaintains ‘Add’₹420

Margin expansion
On late Friday, ITC posted a 21% year-on-year rise in net profit to ₹5,031 crore for the third quarter of FY23, while revenue rose 2.3% to ₹16,226 crore aided by strong growth across its cigarettes, FMCG, hotels and paper businesses.

Meanwhile, its EBITDA (earnings before interest, taxes, depreciation and amortisation) margin expanded by 618 basis points on year to 38.4%.

“Ebitda margin expanded 90bps YoY to 10% (in FMCG segment) despite inflationary pressure as its strategy of cost optimization, portfolio premiumization and optimizing trade and market investments comes into play, however business is significantly above pre-Covid levels,” said a report by Phillip Capital.

ITC Q3 in numbers
Particulars Q3 FY23Q2 FY23Q3 FY22
Net sales ₹16,226 crore₹16,129 crore ₹15,862 crore
EBITDA₹6,223 crore ₹5,864 crore ₹5,102 crore
PAT₹5,031 crore ₹4,466 crore ₹4,156 crore

Hotels business witnessed a strong performance with 51% on-year growth because of the wedding and festive season in the quarter that ended in December.

“We expect hotels business to do very well going ahead as restrictions are lifted and margins to surpass pre-covid levels owing to improved occupancy levels, significant reduction in controllable fixed costs and strong response to food and beverage (F&B) Initiatives,” said Phillip Capital.

Most businesses saw good growth except agri business, which declined 37% on year due to government restrictions on the exports of rice and wheat.

ITC’s FMCG business grew 18% on year because of resilient sales in core staples, noodles, snacks, dairy etc, strong uptick in discretionary, education and stationery category despite tapering Covid tailwinds. However, demand in the hygiene portfolio remained subdued.
Segment sales Q3 FY23 sales% YoY growth % QoQ growth
Cigarette ₹7,288 crore 16.7%4.8%
Other FMCG₹4,841 crore 18.4%-0.9%
Agri business₹3,123 crore -37.1%-21.8%
Paper board ₹2,305 crore 12.7%0.8%
Hotel ₹712 crore50.5%32.9%

ITC shines on robust cigarette volumes
Revenues in the cigarettes segment grew 17% to ₹7,288 crore in Q3 FY23 from ₹6,244 crore last year. Sequentially, it grew 5%. ITC has reported a fifth consecutive quarter of sequential improvement in cigarette volumes, said analysts at Kotak Institutional Equities.

In the absence of any material increase in tax in the budget and better than estimated volume growth in cigarette business, brokerage firm Motilal Oswal says it remains positive on outlook.

“We are positive on ITC given 1) a better-than-expected demand recovery and a healthy margin outlook in cigarettes, 2) healthy sales momentum in the FMCG business, 3) a smart recovery in the hotels business, and 4) better capital allocation in recent years,” said the broking firm in a report.

Analysts say a stable tax environment for cigarettes in recent years have benefitted the firm which earns majority of its revenues from it. “We expect this trend to continue, which should improve cigarette volumes and earnings visibility in the medium term,” said Motilal Oswal.

“Stability in taxes on cigarettes, backed by deterrent actions by enforcement agencies, enable continued volume recovery from illicit trade,” said ITC in a presentation.

In addition, ITC has also entered the top 10 most-valuable companies list following the rout in Adani group stocks and a general resetting in the market capitalisation of shares. ITC now ranks ninth on the list of the most valuable firms with a market cap of ₹4.77 lakh crore.

$ITC.NSE posted great Q3 results showing how strong the fundamentals are. Have always told all my clients to hold $ITC.NSE for long term. In my opinion, it should touch ₹410-420 mark soon! 🙌🏻

— (@nirajmittal) February 06, 2023