ITC demonstrates all-round recovery in Q2FY22, brokerages upbeat
Inexpensive valuation and robust dividend and FCF (Free Cash Flow) yield of 5% remain key attractions making the risk-reward highly favourable.
Shares of FMCG major ITC were trading with losses of 2.58% a day after the company reported healthy second-quarter numbers with both profit & revenue posting double-digit growth. The cigarette-to-hotel conglomerate consolidated net profit grew by 10% to Rs 3,714 crore for the quarter ended September 30, 2021 (Q2FY22). It was Rs 3,366 crore in the year-ago period.
The company’s revenue from operations rose 13% to Rs 14,844 crore from Rs 13,147 crore in the same quarter last year. While its EBITDA (earnings before interest, tax, depreciation and amortisation) stood at Rs 5,017 crore in the second quarter.
Segment-wise the cigarette business saw a smart recovery with volumes near the pre-Covid levels after a significant disruption in Q1. Whereas the FMCG and other businesses witnessed a muted quarter. Meanwhile, revenue from the hotels business inched up significantly to Rs 311 crore for the September quarter, up by a massive 253% over last year as the footfalls increased with the easing of pandemic restrictions.
With an all-round recovery demonstrated in the quarter, here is what brokerages have to say about the company and its September quarter numbers
Jefferies | Rating: Buy | Price target: Rs 300
Cigarette volumes are a bit lower which was offset by better margins, however, the exit volumes are close to the pre-Covid level which is a big positive. A slowdown in FMCG is partially due to the base issue. While the paperboard segment continued to see strong YoY growth. Budget a key event given an expert panel deciding on tobacco taxation.
Prabhudas Lilladher | Rating: Buy | Price target: Rs 270
ITC reported a smart recovery in the cigarette business led by fast recovery across states and segments even as FMCG business suffered due to a high base and higher input costs. ITC is focusing on innovations and distribution expansion across FMCG and cigarettes which should bode well in coming years.
Near-term outlook seems mixed with improved outlook in cigarettes, strong growth and margin outlook in paper board, rising occupancy and EBIDTA positive in Hotels and steady leaf tobacco prices and benefits of currency depreciation. ITC InfoTech has reported 23% growth in sales and 67% PAT for 1HFY22 and the outlook seems positive with 4x deal wins in the last 2 years.
Axis Capital | Rating: Buy | Price target: Rs 290
Enthused with cigarette volume recovery (back to pre-Covid levels on exit basis) and a structural uptick in FMCG revenue/ margin. Low base and benign taxation bode well for a strong recovery in H2. Raise FY22-24E EPS (Earnings Per Share) by ~3% to model better profitability delivery across segments.
Inexpensive valuation (cigarette business at ~9x P/E on reverse SoTP (Sum of The Parts) basis, Sept-23 basis) and robust dividend and FCF (Free Cash Flow) yield of 5% remain key attractions thereby making the risk-reward highly favourable.
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