Retail investors gung-ho on ITC; here’s how much return it may give post Q1 results

Overall, the pandemic-related disruption impacted most consumer companies but weighed heavily on ITC which reported a sharp earning decline in FY21

Retail investors gung-ho on ITC; here's how much return it may give post Q1 results
ITC’s Q1FY22 net revenue came in line, but EBITDA and profit after tax undershot our estimates.

Analysts on Dalal Street sees up to 29% upside in FMCG major ITC after the company on Saturday posted a 30.24% growth in its consolidated net profit to Rs 3,343.44 crore for the quarter ended June 30. It had posted a profit of Rs 2,567.07 crore during the April-June quarter of the previous fiscal. Shares of ITC traded 0.71% up at Rs 213.85 at around 10.40 am (IST). On the other hand, the benchmark BSE Sensex was up 0.23% at 53,095 at around the same time.

Revenue from operations grew 35.91% YoY to Rs 14,240.76 crore during the quarter under review. The company has a “strong rebound across operating segments despite operational constraints in the wake of the second wave,” ITC said.

Shares of ITC have hardly moved in 2021 so far. On a year-to-date basis, the scrip has gained just 1% to Rs 212.35 till July 23. The benchmark BSE Sensex has gained nearly 11% during the same period. Overall, the pandemic-related disruption impacted most consumer companies but weighed heavily on ITC which reported a sharp earning decline in FY21. The net profit of the company declined 14% YoY to Rs 13,389.80 crore for the year ended March 31, 2021.

With an objective to get a superlative return from underperforming ITC, more than 4 lakh new small investors entered the company during the April-June quarter. As of June 30, there were 25,84,930 retail shareholders in the company.

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Global brokerage firm Jefferies said that ITC enjoys low base benefit but Q1 performance has been sharply ahead led by cigarettes (& paperboards). FMCG EBIT was also ahead. Management showed agility during times of disruption and has presented a fairly positive outlook. “With better-than-expected results along with better commentary, we raise EPS forecasts by 2-4%. We retain our ‘Buy’ rating with a slightly higher target price of Rs 275,” Jefferies said.

Among other projects, Morgan Stanley and CLSA both are also bullish on ITC with a target price of Rs 251 and Rs 265, respectively. Morgan Stanley added that cigarette volumes stood up 33% YoY. The figures came better than consensus estimates of 24-28%.

Edelweiss Securities has a ‘Hold’ rating on ITC with a target price of Rs 241. “ITC’s Q1FY22 net revenue came in line, but EBITDA and profit after tax undershot our estimates. Cigarette volumes rose 32% YoY on a soft base of -40% YoY. The FMCG segment’s revenue grew 10.4% YoY driven by hygiene, fragrance, spices, snacks, agarbattis and dairy products. High base effect in staples and convenience foods led to moderation in YoY growth,” the brokerage said adding overall ESG-led investing is assuming significance and ITC is consciously striving to climb up the ESG ladder.

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