Investment Analyst predicts positive recovery in ITC stock


ITC cigarette volumes have returned to pre-Covid levels, allaying concerns about permanent loss of business, Credit Suisse said in a report.

Credit Suisse said ITC’s cigarette volumes have seen a sharp drop during Covid, as much of the consumption takes place in the workplace and is driven by mobility, with both being limited during the period.

As the post-Covid reopening progressed, cigarette volumes recovered. As of 4T FY21, cigarette volumes have returned to pre-COVID levels.

“Based on our estimate, 4T FY21 volumes were up 7.5% from a base quarter, which saw 4T FY20 volumes down 8%. This despite the fact that many offices have still not regained their full power, whether they have followed full or partial work from home. It also gives assurance of no permanent loss of activity in cigarettes due to Covid, contrary to the fear that some smokers could have quit permanently, ”the report says.

“We remain positive on the ITC as we see (1) a strong recovery in cigarettes after the second wave of Covid-19 as consumer mobility recovers; (2) potential restructuring leading to reassessment; and (3) an increasing value of FMCG with strong improvements in EBITDA, ”he added.

BNP Paribas said in a note that ITC declared a total dividend of Rs 10.75 / share in FY21 (5% dividend yield), which is on top of that announced by the Indian private sector companies.

“We see potential for further dividend increases based on our expectation of a double-digit earnings CAGR in fiscal years 21-23. ITC paid out 100% of its profits for FY21, and we believe that can continue to view the 12% cash as one percent of market capitalization. We consider that improving the levels of disclosure by ITC in all divisions is a step in the right direction, ”he added.

The FMCG division had a strong year with 16% sales growth and its margin improvement journey continued with a fourth consecutive year of 150bp plus margin expansion.

The agribusiness reported a 54 percent increase in operating profit on higher sales driven by wheat exports. Cardboard had a stable quarter with a 13% increase in sales and a stable margin. The Hotels division has seen a sequential recovery but its revenues remain well below pre-Covid levels, BNP Paribas said.

“We have reduced our BPA estimates for FY22 by 8% to reduce the impact of Covid on the cigarette business and higher losses in hotels in the short term; however, our estimate of EPS for fiscal 23 remains largely unchanged. We are excited about the recovery / normalization of cigarette volume, improved breakeven point in hotels (on much lower revenues) and structural increase in FMCG revenues / margins. A weak base and benign taxation bode well for a strong recovery in H2; an inexpensive valuation, ”Axis Capital said in a note.

Shares of ITC LTD. was last trading on BSE at Rs.208.8 from the previous close of Rs. 209.1. The total number of shares traded during the day was 1,752,644 in more than 28,770 transactions.

The stock hit an intraday high of Rs. 209.85 and an intraday low of 208. Net turnover during the day was Rs. 365525757.


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