Shares of ITC Ltd. gained after analysts raised the target price of the company after second-quarter net profit beat estimates.
The consumer goods-to-cigarettes maker reported a 24% rise in net profit to Rs 4,619.77 crore in the quarter ended September, according to its exchange filing.
Analysts expect legal cigarette companies to gain further market share from illegal ones in FY23 given no tax hike for a second consecutive year. ITC, being the largest legal player, is seen as a key beneficiary.
In the July-September quarter,
The company's FMCG segment grew 21% led by healthy sales of staples and convenience foods.
Sharp escalation in input costs was mitigated through multi-pronged interventions such as premiumisation, supply chain agility, judicious price hikes, fiscal incentives and accelerated digital adoption.
The segment margins came in at 9.5% in Q2 FY23 versus 10% a year ago. It improved 170 basis points on a month-on-month basis.
The management expects consumption to pick up in H2 FY23 on moderating inflation, normal monsoons in most parts of the country and proactive interventions by the government and the central bank.
Shares of ITC gained 0.31% at Rs 350.80 apiece as of 9:55 am, while the benchmark Nifty 50 was 0.42% higher on the NSE. The stock had hit 52-week high on Thursday.
Of the 35 analysts tracking the company, 33 maintain a ‘buy' and two suggest a ‘hold', according to Bloomberg data. The average of the 12-month target price implies an upside of 7.80%.
Here's what analysts said about ITC's Q2 FY23 results:
Maintains 'buy' rating with a target price of Rs 415 apiece, implying a potential upside of 20%.
Upgrades earnings estimate for FY23-25 by 3-4%.
ITC should benefit from an earnings recovery as covid headwinds subside.
Early signs of share gains from illicit cigarettes are encouraging. But unfavourable change in taxation policy is a downside risk.
Strong cash flows and balance sheet strength to help during the Covid-19 induced disruption.
Upside catalyst: Margin expansion in new FMCG business led by cost optimisation.
Maintains 'buy' rating with a revised target price of Rs 400 per share, implying a potential upside of 20.5%.
ITC continues to gain in the cigarettes market as organised share rises. It will be a key beneficiary in FY23 given no tax hike for the second year.
Other segments have been scaling up with portfolio and network expansion, which augurs well for the company.
Raised EPS estimate for ITC by 7.3%/4.3%, respectively, for FY23/FY24 in light of the strong performance across all categories.
Slowdown in macro-economic environment is a major threat to hotels business.
SUUTI stake sale is a likely overhang on the stock.
Maintains 'buy' rating on the stock with a target price of Rs 400, implying a potential upside of 14%.
Estimated cigarette volume growth of 21% YoY was a positive surprise and resulted in a three-year volume CAGR of 5.1%.
Revised earnings per share by 2-3% in FY23/FY24. If not for the significant compression in other income from the mark-to-market impact on bond investments in the first half of FY23, the increase in its EPS forecasts would have been higher.
The brokerage is positive on ITC fueled by a better-than-expected demand recovery and a healthy margin outlook in cigarettes, healthy sales momentum in the FMCG business, smart recovery from the hotels business, and better capital allocation in recent years.
A stable tax environment for cigarettes in recent years has allowed ITC to calibrate price increases to avoid a disruption in demand. It expects this trend to continue, which should result in improved cigarette volumes and earnings visibility over the medium term.
Valuations of global tobacco peers have been restored to their pre-pandemic levels (Jan. 19), and while ITC's multiples have followed the same trend, it still trades at a 10% discount to its Jan. 19 valuations of 25.4x one-year forward EPS.
The stock has gained 33% since June 2022 and it believes there is further scope for upside based on its healthy earnings outlook.
Retains 'add' with a target price of Rs 375 apiece, implying a potential upside of 7%.
Consistent revenue acceleration across business segments coupled with healthy margin delivery over the past several quarters is quite impressive.
The brokerage is particularly enthused with cigarette volume acceleration (both YoY and 3-year CAGR) which is indicative of ITC's execution prowess — a combination of volume-focus, differentiated launches and market share gains.
It raised earnings per share by 4% for FY23-25E to bake in solid traction across business.
Reiterates 'add' rating with a target price of Rs 400, implying a potential upside of 14.3%.
ITC, after several years, has been highlighting a supportive macro translating to gains from illicit segment since Q1 FY23. Volume recovery from illicit trade, in Q1, it said ‘green-shoots' are visible to now ‘continued volume recovery'. This is the single biggest takeaway driving Q2 cigarette volume growth of 20% (3-year CAGR of 5%).
Other segments like FMCG saw broad-based growth with the management using multiple levers to offset inflationary pressure.
Hotels business continued with good underlying performance, paperboards business is likely seeing structural uptrend and agri-business is also reporting robust underlying performance.
The brokerage raised earnings estimates by 5%/4% for FY23E/24E.
A key downside risk is tax hikes much ahead of inflation leading to volume pressure (on cigarettes) as price elasticity is still unfavourable.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
