ITC Share Price Rallies 2% Despite Unexciting Q1 Results; Still, This FMCG Stock Is Favorite Of Brokerages

FMCG giant, ITC share price jumped nearly 2% on Wednesday despite reporting mixed performance in the June 2023 quarterly earnings. ITC stock neared at least Rs 460 levels. After Q1 earnings, the majority of brokerages have recommended buying ITC stock. There is a potential upside of nearly 24% ahead in ITC shares. Year-to-date, this FMCG stock has rallied nearly 36% on the BSE.

ITC shares jumped by at least 1.9% on BSE with an intraday high of Rs 457.40 apiece. This led to a rise of more than Rs 10,630 crore in ITC's market value in a single day to over Rs 5.70 lakh crore.

At the time of writing, the stock traded at Rs 451.15 apiece, up by 0.5% on BSE.

In the previous session, ITC's shares stood at Rs 448.95 apiece with a market cap of over Rs 5.59 lakh crore.

In the June 2023 quarter, ITC posted a standalone net profit of Rs Rs 4,902.74 crore, rising by a whopping 17.6% from a profit of Rs 4,169.38 crore a year ago same quarter. However, revenue from operations declined by 7.2% to Rs 16,995.49 crore in the quarter as against Rs 18,320.16 crore in Q1FY23. Broadly, the profitability was in line, however, ITC missed in revenue terms.

Should you buy ITC shares post Q1 earnings?

JM Financial has set a 'Buy' recommendation on ITC stock for a target price of Rs 555. This indicates an upside of nearly 24% ahead.

As per the brokerage's note, ITC's Jun-Q earnings did not carry the same kind of excitement that was visible in the past few quarters' results. The FMCG segment, however, continued to perform extremely well - growth was sector-leading with strong enough margin improvement to help EBIT in the segment to more than double. Cigarettes did just about fine and the business is moving in the right direction but steady-state volume momentum (4yr-CAGR basis) has waned a tad, as per our workings. Hotels and paperboards were other areas of disappointment - the former was partly to do with some seasonality and planned renovations and seems more 'under control' whilst the latter could be more long-drawn: led by weaker global demand, China-led excess global supplies and some destocking in the domestic market.

It added, "The stock could take a breather in the near-term on the back of this result, though a potential re-rating is likely on the cards given a sharper capital-allocation strategy. The Board has now approved the Hotel's demerger and shareholders would get 10 shares in the new HotelCo for every share held in ITC."

Further, Antique Stock Broking in its note said, "Post 1QFY24 performance, we have marginally tweaked our estimates for FY24/ FY25. We remain positive on ITC's performance driven by the momentum in cigarette market share gain on superior execution supported by strong momentum in other businesses. We maintain BUY
recommendation with a SoTP-based revised target price of Rs 500 (previously Rs 490), implying PER of 25x FY25E."

Meanwhile, Centrum's research note said, "We believe with steady prices, the legal industry has been able to recoup volumes from illegal cigarettes, yet calibrated price increases holding strong demand for KFST/RSFT segment. We expect FMCG EBITDA/EBIT to move up to 12.9%/8.9% in FY24. With clarity on hotel demerger (value unlocking), we expect investor's focus to shift to core fundamentals of the business such as growth momentum and margin trajectory. Considering strong outlook, we have increased FY24E/FY25E earnings by 2.8%/3.6% and retain BUY, with a DCF-based TP of Rs522 (implying 26.9x FY25E EPS). Risk: rising competitive intensity."

Also, Amnish Aggarwal - Head of Research, Prabhudas Lilladher said, "ITC reported another quarter of strong growth across segments. Cigarette volume growth for 1Q was ~9.8% supported by stability in taxes, and volume recovery from illicit trade. Outlook remains positive although we expect growth to moderate to mid-single digits in medium term. FMCG growth was ahead of industry and margins got a boost due to improving scale, lower raw material costs and PLI incentives, we expect calibrated margin expansion to sustain in coming years. Hotel outlook is positive (despite planned renovations) due to G20 and revival in business & foreign tourist travel. Paper and Paperboard segment has started showing QoQ margin expansion and margins are expected to sustain around current levels. ITC has announced swap ratio of 1:10 for ITC Hotels demerger which is likely to be completed over next 15 months, it will improve ROCE and cash flows."

"Near term outlook remains strong, we estimate 10.7% EPS CAGR over FY23-25. ITC trades at 25.3x FY25 EPS with ROE/ROCE of 30%+/35%+ and ~80%+ dividend payout. Retain Accumulate," Aggarwal added. The target price is Rs 478 apiece.

However, HDFC Securities in its note said, "The core business performance remains healthy, outperforming other FMCG peers. The recent stock run-up (~44% in LTM) limits further rerating potential. We maintain our estimates and value ITC on a SoTP basis to derive a TP of Rs 450. The implied target P/E is 24x Jun-25E EPS. Maintain ADD."

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.