ITC share price falls after Q3 results, dividend; analysts cut target price on weak cigarette volumes; Should you buy? | Mint
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Business News/ Markets / Stock Markets/  ITC share price falls after Q3 results, dividend; analysts cut target price on weak cigarette volumes; Should you buy?
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ITC share price falls after Q3 results, dividend; analysts cut target price on weak cigarette volumes; Should you buy?

ITC's Cigarettes segment disappointed as it witnessed consolidation on a high base after a period of sustained growth momentum. Cigarette volumes dipped 2% YoY and was up 5% QoQ.

ITC's revenue from operations for the December quarter rose 2% year-on-year (YoY) to ₹19,484 crore from ₹19,020 crore. (Photo: REUTERS)Premium
ITC's revenue from operations for the December quarter rose 2% year-on-year (YoY) to 19,484 crore from 19,020 crore. (Photo: REUTERS)

ITC share price declined in the early trade on Tuesday after the company reported its Q3 results with lower-than-expected cigarette volumes. ITC shares fell as much as 1.84% to 441.70 apiece on the BSE.

The cigarettes to hotels conglomerate reported a consolidated net profit of 5,335 crore for the third quarter of FY24, recording a 6% growth from 5,006 crore in the corresponding period of the previous year. 

ITC's revenue from operations for the December quarter rose 2% year-on-year (YoY) to 19,484 crore from 19,020 crore. 

Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA) in Q3FY24 declined 3.2% to 6,024 crore, while EBITDA margin contracted by 180 basis points YoY to 36.6%.

Read here: ITC Q3 results: Net profit rises 6% YoY; here are five key highlights

ITC’s FMCG segment witnessed resilient performance during the quarter with its revenue rising 7.6% YoY on a high base. The segment’s EBITDA margin expanded 100 bps YoY to 11.0%.

However, Cigarettes segment disappointed as it witnessed consolidation on a high base after a period of sustained growth momentum. The segment’s revenue and PBIT rose by 2.3% YoY, with a 2-year CAGR at +9.3% for net segment revenue and +9.4% for segment PBIT. Cigarette volumes dipped 2% YoY and was up 5% QoQ.

ITC sustained volume claw back from illicit trade on the back of deterrent actions by enforcement agencies and relative stability in taxes

According to ITC, its Hotels segment saw its best ever quarter as its revenue and PBIT grew 18% and 57% YoY, respectively.

Hotels segment EBITDA margin improved by 470 bps YoY to 36.2% driven by higher RevPARs, structural cost interventions and operating leverage.

Meanwhile, ITC said its Hotels business demerger plan has received no-objection from the stock exchanges.

ITC board also declared an interim dividend of 6.25 per share for FY24 and fixed the record date for the same on February 8.

Also Read: ITC beats estimates on profit, revenues

Agri Business segment was impacted by trade restrictions on agri commodities (-2.2% YoY); but excluding Wheat & Rice, revenue increased by 14.2% YoY.

Paperboards, Paper and Packaging Segment remains impacted by low priced Chinese supplies in global markets, muted domestic demand, surge in wood cost and high base effect.

Analysts have cut their earnings estimates for ITC citing weaker volumes in cigarette business and continuous pressure in Agri business.

Emkay Global Financial Services 

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, said Emkay Global Financial Services.

Factoring in Q3 performance, the brokerage firm has now cut its topline expectations by 3-4% over FY24-26E, which led to a 3-5% earnings cut. It maintains a positive long-term view on the stock, while sees near-term weak performance to create an entry opportunity. 

It maintained a ‘Buy’ rating on the stock on better execution and supportive macros ahead, but cut the target price to 520 per share from 550 earlier.

Nuvama Institutional Equities

ITC’s Q3FY24 revenue and PAT were ahead of Nuvama’s estimates while EBITDA was below estimates. In spite of numbers being broadly in-line with estimates, the brokerage firm cut its FY24E and FY25E EPS estimates by 5.2% each due to continuous pressure in Agri business and PPP segments and weaker volumes in cigarette business. 

It maintained a ‘Buy’ call and cut the target price to 535 per share from 560 earlier. 

Antique Stock Broking

Post the Q3FY24 performance, Antique Stock Broking has reduced its estimates on ITC by 3%/ 8%/ 6% for FY24/ FY25/ FY26. It remains positive on ITC’s performance driven by the momentum in cigarette market share gains on superior execution supported by strong momentum in FMCG and Hotels business. 

The brokerage maintained a ‘Buy’ recommendation and cut the target price to 499 per share from 532 earlier based on FY26E estimates, implying PER of 25x.

At 9:20 am, ITC shares were trading 1.02% lower at 445.40 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 30 Jan 2024, 09:21 AM IST
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