FMCG giant, ITC Ltd, is in focus on stock exchanges on Tuesday, April 1, as the company announced its acquisition of pulp and paper business from Aditya Birla Real Estate Limited, for a tune of Rs 3,500 crore. ITC shares traded in green, as investors give thumbs-up to the upcoming deal. ITC is a high dividend yield stock, with strong track record of bonus shares and split.
ITC Share Price:
ITC stock traded at Rs 410.90 apiece, up by 0.3% on BSE, with a market cap of Rs 5,14,205.18 crore. The stock ranged from Rs 414.30 to Rs 408.25 apiece, so far in the current session.
Its 52-week high and low are at Rs 500.01 apiece and Rs 381.24 apiece respectively.
ITC-Aditya Birla Acquisition Deal:
As per the regulatory filing, ITC entered into a business transfer agreement with Aditya Birla Real Estate Limited ('ABREL') for the acquisition of ABREL's pulp and paper business operated under the name of 'Century Pulp and Paper', along with the assets, liabilities, contracts, employees etc. ('Undertaking'), as a going concern on a slump sale basis, subject to the conditions precedent specified in the BTA.
The cost of the acquisition is Rs 3,500 crore on a cash-free debt-free basis.
ITC's upcoming acquisition is in line with the company's strategy to drive the next phase of growth in its Paperboards and Specialty Papers Business by expanding capacity at a new location, given the limited scope for expansion at the existing facilities.
The acquisition is expected to be completed in about six months, subject to receipt of statutory approvals and fulfilment of the conditions laid down in the BTA.
B Sumant, Executive Director, ITC Limited said, "The acquisition will strengthen the market standing of ITC's Paperboards and Specialty Papers Business and engender new opportunities in the domestic and international markets. The acquisition aligns with the Company's strategy of driving the next horizon of growth in the Paperboards and Specialty Papers Business by expanding capacity at a new location considering that the existing facilities are already saturated. The strong linkages to afforestation and livelihood creation pursued by both the entities contribute meaningfully to national priorities."
Sumant added, "We are delighted to welcome CPP into the ITC fold and I am confident that together we will continue to set new benchmarks in customer satisfaction, operational excellence and sustainability."
All About ITC's Paperboard Business:
ITC's Paperboards & Specialty Papers Business is a reputable player in the industry offering a wide range of products manufactured at its four world-class facilities with an annual throughput of over 1 million MT. The Business is an exemplar in sustainability with over 50% of its energy requirements met from renewable sources. The integrated nature of the business model is a key source of competitive advantage for the Business besides creating a significant economic multiplier.
In its filing, ITC said that CPP is a one-of-a-kind asset with a strong strategic fit with ITC's Paperboards & Specialty Papers Business. Through acquisition of Aditya Birla's pulp and paper business, ITC is focused on adding significant scale and economies to existing operations with potential for further capacity expansion, provide locational advantage for efficient customer servicing and proximity to key raw material sources, mitigate operational risks through multi-site operations and enhance resilience across industry cycles through portfolio diversification.
ITC Corporate Actions:
ITC is a high dividend yield stock in the FMCG sector, with 3.39% yield as of now. The company has delivered splits, bonus and dividends in last 24 years.
Dividends: ITC has distributed about 28 dividends since July 2003, as per the Trendlyne data. The company also paid about Rs 14 per share dividend in the last 12 months.
Stock Split: ITC shares were split only once in its history. With effect from September 21, 2005, ITC stock has split into the ratio of 1:10, where its face value of Rs 10 each is now Re 1 each.
Bonus Issue: Just like dividends, ITC has a strong hold in issuing bonus shares. Its first bonus issue was of 1:2 in September 2005, followed by second and third bonus issues of 1:1 and 1:2 in August 2010 and July 2016.
ITC Buy Recommendation:
For its upcoming Q4FY25 results, brokerage Kotak Institutional Equities expects ITC's cigarette volume growth at ~4.5% yoy (versus 3%/6% in 2Q/3QFY25), translating into ~7% growth in gross cigarette sales (versus 6.8%/7.8% in 2Q/3QFY25). It added, " We expect cigarette EBIT growth at 3.5% yoy, with 195 bps yoy decline in EBIT margin, due to some inflation in leaf tobacco and other inputs (Leaf tobacco prices are expected to ease and should aid margin recovery by 2Q/3QFY26)."
Furthermore, Kotak's note said, "In the FMCG segment, we estimate (1) 4.5% yoy revenue growth (versus 5.4%/4% in 2Q/3QFY25), (2) EBIT margin at 6% (down 300 bps yoy) impacted by RM inflation (edible oil, wheat, potato, etc.) akin to prior quarter. Agri business growth is expected to be up 7% yoy. Paperboards growth is expected to remain subdued at 3.7% yoy due to tough operating conditions (subdued domestic demand conditions, weak export markets, weaker net realizations, and cheap Chinese supplies flooding the markets) and report an EBIT margin of ~10% (versus 11.5%/9.6% in 2Q/3QFY25; likely bottomed out). Net-net, adjusted for demerger of Hotels business, ITC's LFL gross sales/EBIT growth are expected to be up ~6.5%/(-)0.5% yoy."
Hence, Kotak has recommended to ADD the stock for a target price of Rs 500.
Meanwhile, as per Trendlyne, the consensus recommendation from 37 analysts for ITC Ltd. is BUY. The average target price for ITC is at Rs 515.49 apiece, signalling a potential of 25.5% upside ahead.
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