10:1 Split Ratio, 750% Dividend Record Date Next Week: FMCG Stock ITC To BUY; Target Reduced To Rs 517

FMCG giant, ITC's dividend record date is one of the key focus next week. The largest cigarette maker is set to pay a final dividend of up to Rs 7.50 per share, taking its total payout to 13.75 per share for FY24. At the latest, brokerage KR Choksey has recommended BUY on ITC shares for a target price of Rs 517 apiece, although lower from the earlier target of Rs 533 apiece.

In its latest report, KR Chokey analyst said, "We reduce FY25E/ FY26E Adj. EPS by 3.9%/ 3.6%, respectively, as we reduce our revenues for agri and paperboard businesses on account of the continued macro pressures."

KR's note further said, "We value ITC shares using the SOTP (Sum of the parts) approach applying 15.2x EV/EBITDA (unchanged) on the FY26E EBITDA of the Cigarette business; 17.3x EV/EBITDA (unchanged) on the FY26E EBITDA of the Hotels business; 4.5x EV/EBITDA (unchanged) on FY26E EBITDA of Agri-business; 4.1x EV/EBITDA (unchanged) on FY26E EBITDA of Paper business and 8.2x EV/Revenue (unchanged) on FY26E Revenue of FMCG business - we arrive at the target price to INR 517 per share (earlier INR 533 per share); an upside of 20.0% over the CMP. Accordingly, we maintain our "BUY" rating on ITC Ltd shares."

On May 31, ITC shares ended at Rs 426.15 apiece on BSE with a market cap of Rs 5,32,036.41 crore. Its May month performance broadly was in red but with a marginal drop of 2.2% on BSE. YTD, the stock is down by 9%. ITC is undervalued compared to its sector.

ITC will be in focus in the first week of the trading session in June due to its dividend record date and demerger development.

ITC Dividend:

ITC has announced a Final Dividend of 7.50 per Ordinary Share of 1/- each for the financial year ending 31st March 2024. The record date is fixed on June 4, 2024, for the same. ITC informed that the final dividend will be paid between Monday, 29th July 2024 and Wednesday, 31st July 2024 to those Members entitled thereto

This dividend will be in addition to an interim dividend of Rs 6.25 per share. Together, ITC will pay up to Rs 13.75 dividend per share for the entire FY24. The total cash outflow on account of the Dividend (including the Interim Dividend of Rs 7,799.45 crores paid in February 2024) will be Rs 17,162.99 crores.

ITC Split Of 10:1:

In a major good news, ITC has received the Competition Commission of India (CCI) approval for the proposed combination relating to the demerger of the Demerged Undertaking comprising the Hotels Business of ITC Limited into ITC Hotels Limited on a going concern basis.

ITC is demerging its hotels business in the ratio of 10:1. Giving a demerger update, ITC said, " Post obtaining no-objection from stock exchanges, Scheme of Arrangement for demerger ('the Scheme') was filed with National Company Law Tribunal (NCLT). NCLT has directed convening a meeting of shareholders of ITC on June 6, 2024, to consider and approve the Scheme."

The split-up of the hotel business from ITC will be in the ratio of 10:1. Meaning, for every (Ten) Ordinary Shares 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 completion of the demerger, 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.

ITC Earnings:

In the fourth quarter of FY24, the company's consolidated net profit stood at Rs 5,190.71 crore, declining from Rs 5,406.52 crore in Q4FY23, and Rs 5,242.58 crore in Q3FY24. Consolidated revenue from operations was at Rs 19,446.49 crore, down from Rs 19,484.50 crore in Q4FY23, but marginally up from Rs 19,058.29 crore in Q3FY24.

In the case of earnings, KR Choksey's note said, that ITC reported an in-line performance in terms of overall earnings. The paperboard and agribusiness continued to be laggard during the quarter, but improved volumes for the cigarette business and a continued stellar performance from the hotel segment drove the overall business growth for the Company."

Giving the outlook ahead, the brokerage believes that a stable tax structure will help ITC continue to gain volumes from illicit trade. The FMCG-Others business continues to see stable growth on the back of its continuous focus on new and innovative launches and will see further improvement as consumption sees an uptick. Premiumization and cost optimization will continue to aid profitability for the FMCG-Others business.

Also, the brokerage added that the pipeline of upcoming properties in the hotel segment will assist in maintaining a robust growth trajectory. Moreover, KR Choksey remains cautious about the agri and paperboard businesses and will monitor the growth and margin trend going forward. However, ITC has been striving hard to maintain its margins through various cost initiatives across all the businesses.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, 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.