ITC dips 5% post Q2 results; stock corrects 15% from 52-week high

Shares of ITC dipped 5 per cent to Rs 225.80 on the BSE in Thursday's intra-day trade after the cigarette-to-hotels major reported a 10.09 per cent increase in consolidated profit after tax (PAT) at Rs 3,765 crore in the September quarter of FY22 (Q2), led by a recovery across segments.

With today's fall, the market price of ITC has declined 15 per cent from its 52-week high level of Rs 265.30, touched on October 10, 2021. The S&P BSE Sensex was down 1.28 per cent at 60,363 points at 01:40 pm.

In Q2, ITC's revenues from operations were at Rs 14,844 crore, up 12.90 per cent from Rs 13,148 crore in the same period last year. Sequentially, too, revenues and profits were higher. In the June quarter, revenues from operations were at Rs 14,241 crore and PAT was at Rs 3,343 crore.

ITC reported strong sales recovery with cigarettes volume growth of 10 per cent and robust 25.4 per cent growth in paperboard business. The company said it witnessed a broad-based recovery in cigarette volumes across markets, exiting Q2 with volumes near pre-Covid levels. Certain markets in Kerala and East remained muted, ti added.

Analysts at Emkay Global Financial Services said the cigarette recovery appears healthy with exit volumes at near pre-Covid. "A further increase in mobility and ITC’s initiatives on portfolio expansion should drive a healthy recovery. However, a stable taxation policy remains key to sustaining steady growth ahead. FMCG sequential trends indicate a likely pick-up in growth in H2 as the base normalizes. Increasing cost pressure may, however, limit margin gains in the immediate term," the brokerage firm said. It maintains a 'Buy' rating on the stock with a target price of Rs 270 per share.

"Though ITC saw strong recovery in cigarette volumes from the low base quarter, volumes have not yet reached pre-Covid levels. With the increase in mobility & remote chance of any third pandemic wave, we believe volumes would reach to the pre-covid levels in Q3FY22. However, the segment is adversely impacted by illicit cigarettes, which remains a structural problem for the category," analyst at ICICI Securities said in a result update.

FMCG business has been able to maintain its margins at 10% despite very high commodity inflation. Similarly, we also believe hotels business sales would come back to the pre-Covid levels by Q4FY22, which would help in regaining profitability in the segment. We remain cautiously optimistic about the growth given FMCG business prospects looks promising amid stagnant cigarettes volumes, the brokerage firm said with a 'Hold' rating on the stock with a target price of Rs 260 per share.