ITC reported a dismal set of numbers with cigarette volumes down ~12% on account of 10 days loss of sales in March. The tax incidence increased 13% in Budget while the company took a blended price hike of 9% to cover this hike. Revenues fell 6.4% (net of excise dip of 9.6%) impacted by supply chain & manufacturing disruption. Operating profit also declined 8.9%. However earnings witnessed growth of 9.1%, mainly on account of a cut in corporate tax and reassessment of deferred tax liability.
Valuation & Outlook
With the capex cycle of hotels business coming to an end, we believe capital allocation is likely be further rationalised. ITC has increased its dividend payout to 80% (though the market was also expecting a special dividend). With more than Rs. 20,000 crore of cash & liquid investment and consistent free cash flow generation of Rs. 10,000-12000 crore, we believe the company would continue to pay a large part of this as dividends. This translates to a dividend yield of 5-6%. With the increasing scale & margins of FMCG business, we believe it is likely to be valued close to peers in the industry. We value the stock on SOTP based method valuing cigarette business at 12x PE & FMCG business at 5x price to sales with a target price of Rs. 250/share.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_ITC_Q4FY20.pdf
Shares of ITC LTD. was last trading in BSE at Rs.195.1 as compared to the previous close of Rs. 202.25. The total number of shares traded during the day was 5776272 in over 45917 trades.
The stock hit an intraday high of Rs. 209.25 and intraday low of 193.3. The net turnover during the day was Rs. 1159125521.