Shares of ITC hit a new 52-week high at 296.65 rupees as the stock gained 1% on BSE in Monday’s trading on expectations of strong earnings in the June quarter ( Q1FY23) driven by healthy volume growth in the cigarette business. By comparison, the S&P BSE Sensex was down 0.51% at 54,203 points, as of 12:15 p.m.
So far in calendar year 2022 (CY22), ITC has outperformed the market by jumping 36% against an 8.5% drop in Sensex. The stock had reached a record high of Rs 353 on July 3, 2017
In addition to having a virtual monopoly in its traditional cigarette business, ITC is also India’s leading FMCG distributor, an undisputed market leader in India’s paperboard and packaging market, recognized globally for empowering farmers through its large-scale agro-industry, and a preeminent hotel player in India with a chain of luxury hotels.
The company’s cigarette business has seen a broad recovery, with volumes surpassing pre-pandemic levels. A stable tax environment for cigarettes in recent years has allowed ITC to calibrate price increases to avoid demand disruption. The non-cigarette FMCG business performed well thanks to targeted cost management interventions across the value chain, premiumization and sensible pricing actions.
ITC is expected to post strong revenue growth of 23.3% year-on-year (YoY), driven by 21.8% growth in the cigarettes business, 28% year-on-year growth in the paperboard business and a 17.5% year-on-year growth in the FMCG sector, ICICI Securities said in its first-quarter earnings overview.
“The strong growth in the cigarette business was primarily due to the recovery of cigarette volumes to pre-Covid levels. The growth in the cartonboard business was due to high volumes from a low base quarter and strong growth as global paper prices have risen sharply due to the energy shortage in Europe Growth in FMCG business is expected to be driven by the recovery of stationary business and pricing growth in the of food and personal care. Agriculture sector sales are expected to stagnate as the export of wheat was banned during the quarter and the hotel business is expected to record pre-Covid sales in the first quarter,” said the brokerage house.
According to Motilal Oswal, a recovery in demand for cigarettes, a recovery in some profitable FMCG categories and a reduced backlog in hotel business, coupled with lower input cost pressures than its peers and attractive valuations, make ITC a top pick from a one-year perspective. Financial services.
We expect cigarette volume growth of 11% and a gross margin increase of 190 basis points year-on-year due to better cigarette mix and reduced hotel lag. Key controllable items include cigarette volume and hotel revenue after workplaces open and an increase in travel. The outlook for the agriculture, paper and packaging, and hospitality sectors will also be watched, the brokerage said in its earnings preview.