A 600% Dividend Declared From This Bluechip Stock, Motilal Oswal Sees Significant Upside

The directors of ITC Limited, during a board meeting, held on February 3, 2023, approved to declare the interim dividend of 600% along with quarterly results update. Motilal Oswal, also sees a potential upside of upto 18% from this bluechip stock.

About ITC Limited

ITC Limited is a diversified conglomerate that has various business verticals. Its businesses span from Fast Moving Consumer Goods (FMCG), Hotels, Paperboards and Packaging, to Agri Business and Information Technology.

Over the last decade, ITC's new Consumer Goods Businesses has established a vibrant portfolio of 25 world-class Indian brands that create and retain value in India. Some of its FMCG brands including Aashirvaad, Sunfeast, Yippee!, Bingo!, B Natural, ITC Master Chef, Fabelle, Sunbean, Fiama, Engage, Vivel, Savlon, Classmate, Paperkraft, Mangaldeep, Aim and others have earned encouraging consumer franchise within a short span of time. While several of these brands are market leaders in their segments, others are making progress. It is a market leader in the Indian Paperboard and Packaging industry, also globally acknowledged pioneer in farmer empowerment through its wide-reaching Agri Business, and has a pre-eminent hotel chain in India that is a trailblazer in 'Responsible Luxury'. ITC's wholly-owned subsidiary, ITC Infotech, is a specialized global digital solutions provider.

ITC 3QFY23 Results Update : Gross margin was the highest

According to the Motilal Oswal research report, the operational performance of ITC was in line with the estimates and cigarette volume grew. Each segment has shown decent growth besides the agri-business. " Earnings before interest, tax, depreciation and amortisation (EBITDA) grew 22.0% YoY to Rs 62.2 billion (estimated Rs 60.1 billion), profit before tax (PBT) rose 21.6% YoY to Rs 66.8 billion (estimated Rs 61.6 billion) and adjusted profit after tax (PAT) grew 21% YoY to Rs 50.3 billion (est. Rs 46.1 billion). Gross margin expanded 760 basis point (bp) YoY / 190 bp QoQ to 58.9% (estimated 56.9%), while EBITDA margin grew 620 bp YoY / 200 bp QoQ at 38.4% (estimated 36.0%), the highest in the past 11 quarters. Cigarette volumes are likely to have grown 15% YoY in 3QFY23 (estimated +12%). Volume growth in the base quarter was 12.5%; however, three-year average volume growth was 6.8%. Net cigarette sales grew 17.9% YoY to Rs 62.5 billion (estimated Rs 60.0 billion). Net cigarette EBIT margin contracted 60 bp YoY to 73.9%.FMCG-Others sales grew 18.4% YoY to Rs 48.4 billion. EBIT grew 43.9% YoY to Rs 3.5 billion in 3QFY23, agri business sales declined 37% YoY to Rs 31.2 billion, paperboards sales grew 12.7% to Rs 23.1 billion, and hotels business sales rose 50.5% to Rs 7.1 billion. 9MFY23 net sales / EBITDA / adjusted profit after tax (PAT) grew 21.6%/29.4%/25.8% YoY to Rs 496.4 billion / Rs 177.4 / Rs 136.7."

Motilal Oswal recommends a 'Buy' view, with a target price of Rs 450

Motilal Oswal asks investors to buy stock of ITC Limited as it believes the stock price will grow probably by upto 18% from Rs 381 per share to Rs 450per share based on its estimates. In the research report, the brokerage firm has shared its reason for the ' Buy' recommendation. "We are positive on ITC given 1) a better-than-expected demand recovery and a healthy margin outlook in Cigarettes, 2) healthy sales momentum in the FMCG business, 3) a smart recovery in the Hotels business, and 4) better capital allocation in recent years. A stable tax environment for cigarettes in recent years has allowed ITC to calibrate price increases to avoid a disruption in demand. We expect this trend to continue, which should improve cigarette volumes and earnings visibility in the medium term. The valuations of ITC's global tobacco peers have been restored to their pre-Covid levels (Jan'19), and while ITC's multiples have followed the same trend, it still trades at approximately 15% discount to its Jan'19 valuations of 25.4x 1-year forward earnings per share (EPS). The stock has gained approximately 45% since our upgrade to Buy call in Jun'22 and we believe there is further scope for upside based on its healthy earnings outlook. Maintain BUY with a price target of Rs 450 (23xFY25 EPS).

Currently within one year's time the stock price of ITC Limited has risen by a whopping 66.62%. The latest market price is Rs 383.30 per share, with a 52-week high of Rs 388.20per share and the 52- week low is at Rs 207.00 per share. The market capitalisation of ITC Limited stands at Rs 4,75,829.19 crore.

Interim Dividend details of ITC

During the board meeting held by the company, board members approved and a dividend of 600% pers share, via an exchange filing. "Compnay declared interim dividend off Rs 6/- per ordinary share for the financial year ending on 31st March, 2023; such dividend will be paid between Friday, 3rd March, 2023 and Sunday, 5th March, 2023 to those members entitled thereto and fixed Wednesday, 15th February, 2023 as the record date for the purpose of determining entitlement of the members for such Interim Dividend."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.