ITC share price rose on Wednesday after the company reported its Q1 results and approved the demerger of its hotels business. The scrip was up 1.37 per cent at Rs 455.35 at 9.31 am after the FMCG conglomerate ITC reported a 17 per cent increase in net profit for the June quarter over the last year at Rs 4,902.74 crore. Its strong earnings and attractive valuations have kept brokerages bullish on the stock.
The company’s revenue during the quarter ended June 2023 declined 7.2 per cent to Rs 16,995.49 crore from Rs 18,320.16 crore, YoY.
ITC’s cigarette business clocked nearly 13 per cent YoY revenue growth at Rs 7,465.27 crore on the back of healthy cigarette volume growth of 8 per cent in Q1FY24, while its operating profit rose 11 per cent on year to Rs 4,656 crore.
ITC board of directors also approved the demerger of its Hotels business under a scheme of arrangement amongst ITC Ltd and ITC Hotels Ltd. According to the share entitlement ratio fixed by the company, for every 10 shares held in ITC, ITC shareholders will get 1 share of ITC Hotel.
What Should Investors Do Now?
Morgan Stanley has an ‘overweight’ rating on ITC and it has raised the target price to Rs 493. The brokerage firm expects moderate cigarette tax environment and positive near-term earnings and attractive valuations for the stock.
Nuvama Institutional Equities said that ITC’s Q1FY24 revenue came below it’s forecast; however, EBITDA was in line while net profit beat the estimates. Cigarettes volume shot up 8 per cent YoY, implying market share gains from illegal players — with ITC leading the pack. The FMCG – Others segment grew 16.1 per cent YoY, primarily driven by robust growth in staples, biscuits, noodles, dairy, agarbatti, premium soaps, etc. The Hotels segment clocked its best-ever Q1, it noted.
“We remain positive on ITC’s FY24E revenue momentum with major segments doing well,” Nuvama Institutional Equities said.
It retained a ‘Buy’ rating on the stock with an SoTP-based target price of Rs 560 per share.
Brokerage house Motilal Oswal has retained the ‘buy’ tag with a target price of Rs 535. The firm said that at a time when uncertainty looms over the industry, led by high inflation, unpredictable monsoon and continued weak rural sales, ITC’s recovery in cigarette volumes offer decent earnings visibility at reasonable valuations and attractive dividend yield. Motilal Oswal said that ITC’s earnings outlook is better than other large-cap staples players in FY25 and in terms of a two year CAGR ending FY24.
JP Morgan has an ‘overweight’ rating on the stock with a target price of Rs 475. The domestic brokerage firm stays overweight amid relative earnings security and accommodative valuations.
Jefferies has a ‘buy’ rating on the stock with a target price of Rs 530. The foreign brokerage firm said that earnings growth will moderate, but the stock continues to offer value and provide high earnings.
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