ITC share hits 4-yr high on robust Q1; should you buy, sell, or hold?

Shares of ITC jumped 3% in intraday trade on Tuesday to hit a four-year high of ₹316.65 on the BSE, a day after the FMCG company reported solid earnings for the first quarter of the current financial year 2022-23 (FY23). The FMCG stock further got a boost as analysts remain bullish on the country’s biggest cigarette company after its Q1 FY23 results beat street estimates.

Extending the gaining streak for the second session, ITC share price opened higher at ₹310.40, up 0.9% against the previous closing price of ₹307.55 on the BSE. During the session so far, the largecap stock gained as much as 2.96% to touch a record high of ₹316.65, a level last seen on August 31, 2018. There was a surge in buying as 17.86 lakh shares worth ₹55.78 crore changed hands over the counter as compared to the two-week average volume of 8.72 lakh scrips. In comparision, the BSE benchmark Sensex was trading 88 points lower at 58,026, with 14 of 30 shares flashing in red.

ITC shares have had a remarkable journey in 2022 so far, with stock price rallying 41% in the current calendar year and 6% in the last one month. In the last one year, the stock has risen 50% from its 52-week low of ₹204.50 on August 28, 2021, to ₹316.65 levels in intraday today. The counter breached the ₹300 mark for the first time in three years last week amid earnings optimism. The market capitalisation of the cigarette-to-hotel major currently stands at ₹3,82,947 crore.

Q1 earnings beat estimates

For the April-June quarter of the current financial year, ITC reported strong growth in top and bottom line as stability in taxes on cigarettes, backed by deterrent actions by enforcement agencies, and robust volume growth across the FMCG segment helped the company mitigate inflationary headwinds.

The diversified conglomerate posted a consolidated net profit of ₹4,389.76 crore in Q1 FY23, a 33.9% growth over ₹3,277 crore profit during the same quarter last year. The profit was driven by the FMCG segment and cigarette business, followed by a steady performance from agri and paper business and continued recovery in the hotels business. The revenue from operations grew 37.2% to ₹20,152 crore, from ₹14,687.80 crore during the same period last year.

Segment-wise, FMCG, including cigarettes, accounted for the highest revenue for the company during the April-June period at ₹11,922.81 crore, while the revenue from hotels, agribusiness, paperboards, paper & packaging stood at ₹580.71 crore, ₹7,492.14 crore and ₹2,267.22 crore, respectively.

Analyst view on ITC shares

Domestic brokerage ICICI Securities has raised ITC’s earnings estimates by around 5% for FY23-24E. The agency has maintained an “add” rating on the stock with a revised target price of ₹350, from ₹300 estimated earlier, a potential upside of 10% from current market price.

“At our target price, the stock will trade at 22x P/E multiple March 24E. Key downside risk is tax hikes much ahead of inflation leading to volume pressure (on cigarettes) as price elasticity is still unfavourable,” ICICI Securities said in a latest report dated August 2.

Another brokerage, Sharekhan maintains a ‘buy’ call on the stock with a revised price target of ₹350, citing strong earnings visibility and improved growth prospects for the cigarette business in the backdrop of no possibility of tax hike in near term and the government’s action on curbing illicit cigarettes.

Global brokerage house Morgan Stanley has affirmed 'overweight' rating on the stock and upgraded the target price to ₹330 per share, saying that strong results and positive near-term earnings drivers augur well for the FMCG heavyweight.

Another foreign brokerage, CLSA has maintained an 'outperform' rating on the stock and raised the target price to ₹330 per share.