ITC Shares Rises Up By 7%, Biggest Gain In Five Months

ITC (Rs 3.72 lakh crore) has overtaken Hindustan Unliever (Rs 3.6 lakh crore) in market capitalsation and became the fourth most valued company at Dalal Street after TCS (Rs 7.47 lakh crore), Reliance Industries (Rs 7.06 lakh crore) and HDFC Bank (Rs 5.82 lakh crore).

ITC posted a profit of Rs 2,819 crore, up 10% from a year ago. That’s marginally higher than Rs 2,800 crore consensus estimates of analysts tracked by Bloomberg. Revenue rose 7.6% to Rs 10,707 crore.

Shares of ITC Ltd  surged nearly 7%, reported on Friday, the biggest jump in five months after the cigarette and consumer goods producer reported better than expected first-quarter earnings. The ITC stock gained as much as 6.91%, its maximum gains since 1 February and touched a one-year high of ₹ 307 a share—a level last seen on 17 July 2017. ITC shares gained for seventh consecutive sessions, adding nearly $7.29 billion in market cap. It rose 14.4% in this period. So far this year, ITC shares have advanced 16.3%.

Earnings before interest, tax, depreciation and amortisation grew 12.2% to Rs 4,203 crore while operating margins advanced to 39.3% from 37.6% a year ago. Analysts had predicted margins to come at 37.2%.

“ITC’s earnings print was ahead of our expectations with multi-quarter high operating profit growth. Cigarette volume growth in the positive zone (+1% yoy, our estimate) and modest acceleration in cigarette EBIT growth were the key positives while subdued topline growth in the FMCG was the key disappointment,” said Kotak Institutional Equities in a note to its investors.

The brokerage firm has reiterated the stock to “Add” and increased its target price to Rs 330 a share from Rs 315 a share. “We value the cigarette business at 25X post-tax EBIT and the FMCG business as 5X EV/sales. We remain positive; it is perhaps the only large-cap stock in the sector where the current valuations factor in a less-than-super-optimistic view of the future”, Kotak added.

Operating profit from cigarettes in the June quarter grew 8.7% y-o-y to Rs 3,558.39 crore. The company has been complaining about continued pressure on its cigarette sales. ITC’s emerging non-cigarette consumer goods business turned in a pre-tax profit of Rs 127.76 crore in the June quarter, up 86% over the same period last year.

“ITC stock has under-performed the sector for the last one year. Now, with improving growth trajectory (both topline and bottomline), less likelihood of increase in cess on cigarette as the government goes into election in 2018 and strong valuation comfort (valuation discount to sector at all time high of 50%), we believe that ITC can potentially outperform the sector over the next 6-9 months”, said Jefferies India in a note to its investors.

“Given, 12.2% YoY EBIT growth (highest in 9 quarters) and all round performance across segments, we believe double-digit EBIT growth will sustain. We expect ITC stock, after one year of underperformance, to start outperforming as earning growth converges with broader staple sector,” Jefferies India added. The brokerage firm has maintained Buy rating on the stock and increased its target price to Rs 345 a share from Rs 330 a share.