ITC Q3 Results Review: Most Analysts Say 'Buy' Despite Commodity Cost Pressures
Here’s what brokerages have to say about ITC's Q3 results:
Most analysts remained optimistic on ITC Ltd. as its mainstay cigarettes business recovered and segments such as paperboard and hotels grew.
India’s largest cigarette maker saw its third-quarter profit rise as mobility picked up and on efficient distribution system. Its cigarette sales grew 13.6% over the year earlier.
Analysts expect no tax increase on cigarettes in the Union Budget 2022 to give confidence on sustaining its volume growth.
While ITC’s revenue from hotels doubled, that from the paperboards, paper and packaging rose 39%. The hotels business sustained the recovery with revenue at 86% of the pre-Covid levels. It reported EBIT at Rs 51 crore after six consecutive quarters of operating losses.
But high commodity inflation hurting the company’s margin.
Shares of ITC rose as much as 1.73% intraday but pared all the opening gains to trade 0.15% down as of 10:50 a.m. Of the 36 analysts tracking the company, 27 maintain a ‘buy’, eight suggest a ‘hold’ and one recommends a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 17.7%.
Here’s what brokerages have to say about ITC's Q3 results:
IDBI Capital
Maintains ‘buy’ with a target price of Rs 300 apiece—a potential upside of 28%.
Value growth in cigarette, FMCG and paperboard business is highly encouraging.
Marginally adjusted EPS estimate by 0.5-2% for FY22-24E
Edelweiss Securities
Upgrades to ‘buy’, hikes target price to Rs 285 from Rs 265 earlier.
Sees limited downside in light of no tax hike for the second consecutive year, making cigarettes more affordable and helping ITC win share from illegal players.
The revision in rating also takes into account stock correction by 11% from its peak; 4.5-5% dividend yield; and reduced abatement in chewing tobacco, making them more pricey and benefitting cigarettes.
Emkay
Retains ‘buy’ with a target price of Rs 270—a potential upside of 15.2%
The recovery in cigarettes from lower inflation may continue to improve the earnings outlook. Stability in taxes remains key for the industry to sustain steady volume growth and gains from illicit trades.
Performance was better than other staples’.
Prabhudas Liladher
Maintains ‘buy’, hikes target price to Rs 284 from Rs 270 earlier.
Marginally tweaks FY23/24 earnings by 0.3%/0.7% given faster-than-expected recovery in cigarette business and strong growth across agri, hotels and paperboard business despite margin setback in FMCG business.
FMCG and IT services will add maximum shareholder value over time.
ITC e-commerce sales at 3x of FY20 levels.
Expects steady improvement in hotels profitability sans further severe Covid waves, although paper and paperboard margins have peaked out.
Nirmal Bang
Maintains ‘buy’ with a target price of Rs 285, valuing ITC at a multiple of 20x on Sept’23E earnings per share.
Unprecedented inflation impact largely offset through focused cost management actions, mix improvement and judicious pricing action.
It has revised FY22E/FY23E/FY24E EPS by -1.8%/-2.3%/0.9% as it builds in lower gross margin estimates. The brokerage is building in 12% EPS CAGR over FY21-24E.