ITC shares: Should you buy, sell or hold post Q3 results, dividend announcement

04 Feb , 2022 By : Kanchan Joshi

Diversified entity ITC Ltd reported a 15% increase in consolidated net profit to Rs4,056 crore for the third quarter ended December 2021 as compared to rs3,526 crore. The cigarette-to-hotel conglomerate's revenue from operations surged 30% to Rs18,365 crore from Rs14,124 crore in the year-ago quarter.

The company's board has approved an interim dividend of rs5.25 per ordinary share of Re 1 each for the financial year ending on March 31, 2022.

ITC saw an encouraging recovery in cigarette. Sales growth was largely led by volumes, which were above pre-Covid levels. Cigarette margins rose 55 bps, driving 14% growth in EBIT. FMCG performance was driven by foods and discretionary categories. Margins were down due to high inflation, highlighted brokerage Emkay.

It has retained Buy rating on ITC shares with a target price of Rs270. “Performance was better than other staples’. The recovery in cigarettes from stable taxation and lower inflation may continue to improve the earnings outlook."

The cigarettes segment clocked a revenue of Rs6,958 crore as compared to Rs6,091 crore in the same period last fiscal. Its other FMCG division had a revenue of Rs4,099 crore as against Rs3,752 crore in the year-ago quarter.

Analysts at Prabhudas Lilladher expect steady improvement in Hotels profitability sans further severe covid waves although Paper and paperboard margins have peaked out. FMCG remains on track to sustain double digit growth and steady margin expansion. The brokerage believes FMCG and IT services will add maximum shareholder value over time. Its Buy rating on ITC stock comes with a target price of Rs284 per share.

“Volumes have increased compared to pre-covid, margins in the business continues to remain muted. Though the stock is trading at a steep discount to FMCG peers, we believe that the stock would remain under pressure due to severe competition from smuggled cigarette brands and overhang on central duty changes. Maintain Sell with target price of Rs230," said Dolat Capital in a note.