Q3FY21 Result Update - ITC - ICICI Direct

ITC reported 4.7% revenue growth led by healthy growth in FMCG & agri business. Cigarettes segment continued to see dismal sales growth of 3.5% with 7% volume decline. The dip in cigarette volumes is due to prevalence of work from home trend & restricted outdoor activity (restaurants, pubs were not fully operational). However, we believe Q4 should see strong pre-Budget buying, which is likely to drive QoQ growth cigarettes volumes (Base quarter was impacted by Covid). FMCG business saw 7.5% growth with essential and discretionary categories seeing 11% growth whereas 'classmate' brand continue to see significant sales decline (~55% down) as schools are not fully functional. FMCG operating margins saw 140 bps margin expansion to 9.2%. Hotels business has recovered to 40% of pre-Covid levels with losses reduced significantly to Rs. 57 crore (Q2 losses were Rs. 184.9 crore). Paper & paperboard business saw 5% de-growth given slower recovery in related industries (notebooks, wedding cards). Operating profit fell 7.2% to Rs. 4281.4 crore. Operating margins contracted 437 bps to 34% (similar to Q2) mainly impacted by negative operating leverage. PAT saw a dip of 11.6% to Rs. 3662.9 crore impacted by lower operating profit, higher tax provisioning. ITC declared an interim dividend of Rs. 5/share.

Valuation & Outlook

The capital allocation strategy for ITC has changed with completion of capex in hotels business and stabilisation of FMCG businesses. With Rs. 5/share interim dividend, we believe full year's dividend payout would be more than 100% (including special dividend) in FY21E. However, we believe overhang of subdued growth in cigarettes would continue to weigh on valuation multiples. We value the stock on an SOTP basis with a target price of Rs. 245 (earlier Rs. 225) and downgrade the stock from BUY to HOLD rating.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_ITC_Q3FY21.pdf

Shares of ITC LTD. was last trading in BSE at Rs.218.65 as compared to the previous close of Rs. 217.45. The total number of shares traded during the day was 1356457 in over 9934 trades.

The stock hit an intraday high of Rs. 221 and intraday low of 217.5. The net turnover during the day was Rs. 297225186.

Source : Equity Bulls

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