Robust cigarettes volume growth in Q3 makes brokerages optimistic on ITC share price; to pay 600% dividend
3 min read 05 Feb 2023, 04:47 PM ISTOn segment-wise performance, the company's FMCG-cigarettes revenue grew 16.72% YoY to ₹7,288 crore, while FMCG-others revenue stood at ₹4,841 crore. ITC's hotel business revenue climbed by 50.48% YoY.
PremiumFMCG player ITC posted a 21% YoY rise in net profit to ₹5,031.01 crore for the quarter ending December 31, 2022 (Q3FY23) period. While revenue soared by 2.3% YoY to ₹16,225.1 crore in the quarter. Investors will react to the Q3 numbers of ITC during this week's trading session. Robust cigarettes volume growth in Q3 has made brokerages optimistic about ITC share price.
ITC's net profit and revenue were at ₹4,156.2 crore and ₹15,862 crore in December 2021 quarter.
In Q3FY23, EBITDA jumped by 22% YoY to ₹6,223.2 crore.
On segment-wise performance, the company's FMCG-cigarettes revenue grew 16.72% YoY to ₹7,288 crore, while FMCG-others revenue stood at ₹4,841 crore. ITC's hotel business revenue climbed by 50.48% YoY, and paperboards, paper & packaging revenue advanced by 12.65% YoY. However, the company's agri business posted 37% YoY decline in revenue during Q3FY23.
The FMCG giant declared a dividend of ₹6 per share having a face value of Re 1 each for the financial year FY23. In percentage terms, ITC's dividend is around 600%. The company has set February 15 as the record date to determine eligible shareholders for the dividend benefits, while the payment dates are fixed between March 3rd to March 5th.
In FY22, ITC paid a dividend of 1,150% aggregating to ₹11.5 per share.
On BSE, ITC shares closed at ₹380.50 apiece marginally up on Friday. At the current market price, ITC's dividend yield is around 3.02%.
What should investors do?
Amnish Aggarwal – Head of Research, Prabhudas Lilladher said, "Revenues grew by 2.3% YoY to Rs162.3 billion (PLe: Rs177.7 billion). EBITDA grew by 22% YoY to Rs62.2 billion (PLe: ₹58.1 billion) while margins expanded by 619bps YoY/200bps QoQ to 38.4% (PLe:32.7%). Adj PAT grew by 21% YoY to Rs50.3bn (PLe: Rs46.5 billion)."
Further, Aggarwal added, "Cigarette Revenues grew by 16.7% YoY to Rs72.9 billion; EBIT grew by 17% YoY to 46.2bn. Margins expanded by 11bps YoY to 63.4%. Estimated Cigarettes volume growth of 14.5% (PLe: 7.5%)."
While giving an 'Accumulate' rating on ITC share price, Aggarwal said, "stock currently trades at 24.5x/22.4x FY24/FY25 EPS."
According to ICICI Direct's post Q3 note on ITC, the company's share price has given a return of 40% in the last five years (from ₹271 in February 2018 to ₹381 in February 2023)." Brokerage said, "We raise our cigarette volumes growth estimate from 13% to 17% for FY23E considering market share gains from illicit cigarettes as well as strong growth in ₹10/stick price point."
Hence, ICICI Direct has given a 'Buy' rating on ITC shares, while adding, "we value the stock at ₹450 on SOTP basis valuing the cigarettes business at 18x FY25 earnings & FMCG business at 6x FY25 sales."
ICICI Direct also highlighted key triggers for future price performance in ITC. These are:
- With the minimal increase in taxation in current Budget, taxation (excise, GST, cess) has largely remained stable over the last five years. This has helped cigarettes industry to recoup volumes from illicit & contrabands.
- FMCG business has seen sales CAGR of 13.5% over the last three years. Most of the present foods categories (atta, chocolate, juices, biscuit, dairy and frozen foods) have large opportunity size, which would drive growth in future. FMCG margin would continue to grow by 100-150 bps every year.
- Hotels business, in occupancy levels, has crossed 70% while ARRs are above pre-pandemic levels. We believe business would continue to grow at a faster pace in near term factoring in pent-up demand.
ITC is currently the leading cigarettes and second largest FMCG company in India with ~78% of market share in cigarettes & presence in staples, biscuits, noodles, snacks, chocolate, dairy products & personal care products. Also, the company's business is expanded to paperboard, printing & packaging, agri & hotels.
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.
