10:1 Split, 3 Bonus: FMCG ITC Stock Volatile Ahead Of Dividend, Q4; Prabhudas Overweight, 30 Analysts Say BUY

FMCG giant ITC started the week on a volatile note ahead of its Q4 results and final dividend recommendation. ITC stock is undervalued compared to the performance of the FMCG sector, making it an attractive bet. Last week, the company announced a key change in its management.

At the time of writing, ITC shares traded at Rs 434.75 apiece, marginally down on BSE with a market cap of Rs 5,42,773.27 crore. The stock ranges between Rs 437.05 to Rs 434.50 apiece in the day.

ITC is near its 52-week high of Rs 499.60 apiece. Its all-time gain is about 8,011.01%.

ITC Management Change:

Last week, ITC announced that Rahul Jain, Non-Executive Director, has tendered his resignation from the Board of Directors of the Company with effect from 31st May 2024, due to a change in his posting in the Government of India. Jain represented the Specified Undertaking of the Unit Trust of India.

ITC Dividend:

On May 23, ITC's board of directors will consider and recommend Final Dividend for the financial year ending 31st March 2024.

Earlier, in 2024 during February month, ITC turned ex-dividend earlier for an interim dividend of Rs 6.25 per share or 625% having a face value of Re 1 each for the financial year ending on 31st March 2024. As per Trendlyne data, since July 2001, ITC has delivered up to 28 dividends to its investors. In the last 12 months, ITC has paid up to Rs 15.75 per share dividend.

ITC Q4 Earnings:

Also, on May 23, the board will consider and approve the Audited Standalone and Consolidated Financial Results of the Company along with the segment-wise Revenue, Results, Assets and Liabilities for the Quarter and Twelve Months ended 31st March 2024, the Balance Sheet as of that date, the Statement of Cash Flows for the financial year ended on that date and the Notes thereto.

In its Q4 preview note, brokerage Nirmal Bang for ITC said, "We expect ITC's overall topline growth to be moderate at ~4% YoY on the back of Cigarettes business growth partially getting offset by relatively lower sales in FMCG-others business and decline in the Agribusiness. Cigarette sales are likely to grow by 10% YoY with an expected volume increase of 5% YoY. Volume growth on a 5-yr CAGR basis is likely to remain healthy at 3.8% YoY."

Further, the brokerage expects the growth momentum in Other-FMCG business to continue, although it is likely to be relatively lower with 7% YoY growth in segment revenue. Further, we expect the hotel business to grow by 13% YoY and the Agribusiness to decline by 4% YoY. Paperboards, Paper & Packaging business is expected to decline by 5% YoY.

Along similar lines, JM Financial expects ITC's cigarette volumes to consolidate leading to lower EBIT growth of +4.3%. Hotels and FMCG continue to perform well but Paperboards are likely to remain weak. Accordingly, JM expects ITC to report net sales of Rs 17,783 crore, marginally up by 3.2% YoY, while adjusted profit is expected at Rs 5,062.2 crore, marginally up. Nonetheless, the brokerage has recommended BUY on ITC.

ITC Stock Fundamentals:

As per Trendlyne data, the consensus recommendation from 33 analysts for ITC Ltd. is BUY. Of the total, 20 analysts have suggested 'STRONG BUY', while 10 analysts have recommended 'BUY'. 2 Experts have advised 'HOLD', while 1 has given SELL. EPS is expected to grow by 6.9% in FY24. The 1-year average target price is Rs 501.74 apiece, hinting at over 15.5% potential upside ahead.

Meanwhile, among parameters, Axis Securities on ITC highlighted that in the last 1 year ITC Ltd has Underperformed Nifty 50 by 21.87% (CAGR difference). In the last 1 year, the volatility of ITC Ltd is Higher than the Nifty 50 volatility by 0.51%. Further, for 3 out of the Last 12 Months, i.e. 25% of the time it has beaten Index returns.

Also, Prabhudas Lilladher has turned overweight on ITC stock in expectations of a post-election rally.

After Q4 earnings, the next big trigger would be ITC's demerger of ITC Hotels. ITC's ordinary shareholders are scheduled to meet on June 6, 2024, to consider, and if thought fit, approve the proposed Scheme of Arrangement amongst ITC Limited and ITC Hotels Limited and their respective shareholders and creditors.

The split-up of the hotel business from ITC will be in the ratio of 10:1. Meaning, for every (Ten) Ordinary Share of the face and paid-up value of Re. 1 each held in ITC, 1 (One) equity share of the face and paid-up value of Re. 1 in ITC Hotels

After the implementation of the Scheme, the shareholders of ITC will directly hold about 60% of ITC Hotels, proportionate to their shareholding in ITC. The balance stake of about 40% will be held by ITC.

Other Corporate Actions:

ITC also holds the record of paying bonus shares and turning ex-split. So far in its history, ITC has split only once in the ratio of 1:10 and that was done in September 2005. ITC split its 1 equity share into ten equity shares. The face value was trimmed to Re 1 from Rs 10, hence, a stock split ratio of 1:10.

Also, ITC has rewarded investors with three bonus issues. The first bonus issuance was in September 2005, for a 1-to-2 ratio. This meant that ITC awarded 1 new bonus share on the existing two equity shares. ITC further declared a 1:1 bonus issue in August 2010, and a 1:2 ratio in July 2016.