1:10 Stock Split: From Rs 40-To-400, FMCG ITC Gives 860% Returns, 625% Dividend Soon; More Room To Buy!

FMCG giant ITC has emerged as a star performer in its segment, outperforming its rival Hindustan Unilever. On the back of resilient performance in Q3 earnings, ITC has been an attractive bet as brokerages recommended buying. The highest target price in ITC is set at Rs 556 apiece, which indicates a nearly 36% whopping potential upside ahead. But ITC has been making its investors rich giving multifold returns since its first stock split nearly 20 years ago. Ahead, ITC is also in focus to reward a 625% interim dividend by the end of this month.

ITC Share Price:

ITC's share price traded flat at the time of writing to Rs 409 apiece in the early trade of Tuesday. The stock opened at an intraday high of Rs 411 apiece. Its market cap is over Rs 5.10 lakh crore.

ITC Dividend:

ITC declared 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; such Dividend will be paid between Monday, 26th February 2024 and Wednesday, 28th February 2024 to those Members entitled thereto.

For the same, ITC shares have turned ex-dividend on February 8 which was also the record date to determine eligible shareholders.

ITC Earnings:

In Q3FY24, amidst a challenging macro-economic and operating environment as stated above, and a high base effect in some of its operating segments, the Company delivered a resilient performance during the quarter.

Gross Revenue stood at Rs.17,483 crores representing a growth of 2.1% YoY (excl. Agri Business: up 3.9%) while PBT (before exceptional items) at Rs. 6,731 crores grew by 0.8% YoY. PAT grew by 10.8% YoY to Rs. 5,572 crores. Earnings Per Share for the quarter stood at Rs. 4.47 (previous year Rs. 4.06).

ITC Stock Split Charm:

The FMCG giant has announced a stock split only once in decades. It was on September 21, 2005, when ITC turned ex-split for splitting 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. Since its first stock split, ITC shares have gained by 864%.

Since then, ITC has made a tremendous journey, making investors rich along the way. Here's how!

For example, if you held 500 shares before September 21, 2005, then following the stock split ratio of 1:10, your number of shares will rise to a whopping 5000 shares (500 x 10).

Adjusting to the stock split price, ITC share price was at Rs 42.64 apiece on September 20, 2005, before turning ex-split. So your portfolio is valued at around Rs 2,13,200, while on the ex-split day, the portfolio is valued at around Rs 2,32,300. It also needs to be noted that during the stock split, the demand for share prices is higher and they're mostly bullish trends. And this was the case with ITC's stock split as well because it rose 9% alone on the ex-split day.

On February 19th, ITC shares stood at Rs 409.20 apiece, and on this price level, your 5000 equity shares in ITC have risen to Rs 20,46,000, that's multi-fold returns. This excludes taxes and considering you have not modified your portfolio.

Should You BUY ITC Shares?

Emkay Global:

We stay positive on ITC on account of better execution and macros supporting its diversified businesses. We believe while the long-term outlook remains promising, navigating near-term challenges is crucial. Cigarettes' estimated volume decline of 2% in Q3FY24 is discouraging (affected by the high base), and we are hopeful of recovery in Q4FY24E. Non-cigarette business had a muted show with 1% sales growth and 10% EBIT decline in Q3FY24.

On a low base of FY24, we see double-digit growth over FY25-26. The BOD has approved the declaration of an interim dividend of Rs6.25/share. We have revised our earnings down by 3-5% over FY24-26E, as we factor in near-term demand stress. We have also revisited our SOTP-based TP, assigning multiples in line with sector peers. Overall, our Dec-24 TP has reduced to Rs520 from Rs550.

Religare Broking:

ITC reported subdued numbers for the quarter with lower single digit revenue growth and muted margin performance. In the near term, there are challenges of commodity inflation of certain items and demand slowdown in rural areas but ahead their plan continues to grow its FMCG segment with focus on innovation and premiumization while at the same time, their focus remains on consumers and increasing spending towards brand building, expanding distribution & channel reach.

Meanwhile, the hotel de-merger plan is progressing well. We remain positive on the growth prospects ahead and financially have estimated its revenue/EBITDA/PAT to grow at 8.1%/10.2%/12.5% CAGR over FY23-26E. Thus, maintaining our Buy rating and a target price of Rs 535 on the stock, assigning a P/E multiple of 24x on FY26E EPS (similar to 10 years average P/E of 23.7x).

Motilal Oswal:

There are no material changes to our EPS estimates for FY24, while we cut our FY25E EPS by 6.2%. The resilient nature of ITC's core business amid an uncertain environment in the sector, along with a 3-4% dividend yield, makes it a good defensive bet in the ongoing volatile interest rate environment.

The earning CAGR at the PBT level stood at 8.5% over FY18-23. We expect ITC to post a c.7% earnings CAGR over FY24-26. We reiterate our BUY rating with a TP of INR 515, based on SoTP valuation.

Prabhudas Lilladher:

We are largely retaining our estimates and estimate 7.5% EPS CAGR over FY24-26. We believe FMCG and IT services will add significant shareholder value over coming few years. ITC trades at 23.4x FY26 EPS with ROE/ROCE of 31.4/41.7% and ~80%+ dividend payout. We assign SOTP based target price of Rs489 (Rs487 earlier) as we roll forward to Dec25. We expect returns to be back ended given tepid EPS growth despite favorable valuations. Retain Accumulate.

Centrum Broking:

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 on core fundamentals of the business such as growth momentum and margin trajectory. ITC declared interim dividend of Rs6.25 per share. Considering moderate outlook, we cut FY24/25E earnings by 4.4%/6.8% and retain BUY, with a revised DCF-based TP of Rs556 (implying 29.4x FY25E/FY26E EPS). Risk: rising competitive intensity.

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.