ITC - Q3 FY21 Result Update - YES Securities

Soft quarter but setting up for a strong recovery in FY22, valuations remain attractive

- Our View - Given still attractive valuations at 15x FY23, we remain positive on the stock despite this muted performance and see a gradual re-rating towards 18-20x and move towards Rs 270 and beyond.

- Summary - Overall results weaker than expectations with flat revenue, 7% decline in EBITDA and 14% decline in PAT given muted revenue performance in FMCG and sharp margin decline in cigarettes and losses in hotels.

- Revenue performance - Cigarette revenue growth of 3.5% (~5% volume decline), 7.5% growth in FMCG (expected 14% growth), 57% decline in hotels, 18.5% growth in agri and 5% decline in paper.

- Margins - Cost saving initiatives partially offset the sharp gross margin decline of 400bps to 57.5% with EBITDA margin decline of 280bps to 36.3%; margins declined in all segments other than FMCG which saw 260bps growth to 5.8%, cigarettes saw a sharp decline of 800bps to 62.8% given inferior mix and volume decline.

- Outlook - Despite a muted FY21, FY22 should see a strong recovery with cigarettes volumes bouncing back and FMCG sustaining a strong growth trajectory coupled with improving margins.

Shares of ITC LTD. was last trading in BSE at Rs.217.45 as compared to the previous close of Rs. 226.45. The total number of shares traded during the day was 3410440 in over 26515 trades.

The stock hit an intraday high of Rs. 225.95 and intraday low of 215.8. The net turnover during the day was Rs. 745241118.

Source : Equity Bulls

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