The share price of cigarette major ITC gained over 4 percent in the early trade on Monday after the company reported a 9.05 percent on-year rise in Q4FY20 standalone net profit to Rs 3,797.08 crore supported by lower tax cost and robust operating performance in FMCG segment.
The stock rose as much as 4.1 percent to Rs 203.10 per share on the BSE. However, the stock pared some gains, trading 1.44 percent higher at Rs 197.90 apiece at 10 am.
ITC’s revenue from operations during the quarter fell 6.4 percent to Rs 11,420.04 crore from Rs 12,206.03 crore, YoY, hit by nationwide lockdown that starting March. The company’s cigarette volumes were down by around 9-10 percent.
Earnings before interest, tax, depreciation and amortization (EBITDA) fell 8.9 percent to Rs 4,163.5 crore from Rs 4,571.6 crore while EBITDA margin expanded by 30 bps to 38.4 percent, YoY.
Revenue from its cigarettes business, which contributes 45 percent to total revenue, declined 6.5 percent to Rs 5,130.53 crore. The segment’s earnings before interest and tax (EBIT) declined 11.7 percent to Rs 3,403 crore, YoY.
ITC’s FMCG-others segment EBITDA rose to Rs 256.47 crore from Rs 228.27 crore on–year. FMCG-others revenue fell 2.8 percent to Rs 3,183.55 crore while its EBIT rose 12.6 percent to Rs 146.95 crore, YoY.
The company recommended a dividend of Rs 10.15 for FY20.
Brokerage firm Jefferies maintained ‘Buy’ rating on the stock with a target price (TP) of Rs 240 per share as it believes that the company’s cigarette business is on course to hit near pre-COVID levels.
Jefferies said that the company’s volume decline appeared good in the context of a sharper decline by its peers. It expects that Q1FY21 would be a washout. The brokerage believes that a dividend yield of 5 percent makes the company attractive.
CLSA believes that the near term looks tough for the company while navigating core headwinds remains critical. The global brokerage noted that the dividend payout increased to 88 percent in FY20 and sees minor cuts in earnings estimates for FY21-22.
CLSA maintained an ‘Outperform’ rating with a TP of Rs 220 per share.
Macquarie said that the company’s recovery in cigarette volume has been strong with June run-rate of cigarette volume at 85-90 percent of pre-COVID-19 levels.
The brokerage believes that ITC’s FMCG business can be an outperformer amongst peers in FY21.
With dividend yield now more than 5 percent, Macquarie maintained ‘Outperform’ rating with a target at Rs 232 per share.
“ITC has been aggressive in its FMCG business – launching sanitizers and hand washes, leveraging its extensive distribution network and acquiring a key regional spice brand. However, it has lost around 40 days of cigarette sales due to the lockdown. Its hotels and paper segments, too, are likely to be impacted due to the loss of business. While it missed the Street estimates due to decline in revenues across all segments, the performance of its FMCG segment has kindled hopes of an improved show in the latter part of the year,” said Rajit Rajoriya, Equity Research Associate, Angel Broking Ltd.
