ITC woos Street with operationally strong Q1 performance; should you add to your portfolio?

ITC shares registered mild gains on on Wednesday, as trading resumed on Dalal Street following the Independence Day holiday, after the cigarettes-to-hotels conglomerate staged a strong financial performance in the quarter ended June 30 with a 680-basis-point increase in margin.

The ITC stock gained by as much as Rs 5.1 — or 1.1 per cent — to Rs 454 apiece on BSE in morning deals, coming within Rs 50 of an all-time high touched last month.  

Analysts lined up largely positive views on ITC after the earnings announcement, with their targets implying growth of as much as 18 per cent in the stock. 

ITC Q1 results

After market hours on Monday, ITC reported a year-on-year increase of nearly 18 per cent in standalone net profit to Rs 4,903 crore for the first quarter of the current financial year, driven by strong demand for consumer goods in urban as well as rural markets.

The cigarette maker's earnings before interest, taxes, depreciation and ammortisation (EBITDA) came in at Rs 6,251 crore for the April-June period as against Rs 5,648 crore for the corresponding quarter a year ago, though its revenue contracted 8.5 per cent to Rs 15,828 crore, according to a regulatory filing. 

Its margin — a key measure of profitability — improved to 39.5 per cent from 32.7 per cent a year ago. 

According to Zee Business research, ITC's quarterly net profit was estimated at Rs 4,681 crore, revenue at Rs 16,443 crore, EBITDA at Rs 6,158 crore and margin at 37 per cent.

Revenue from the cigarettes business expanded 10.9 per oent on a year-on-year basis. 

The company's hotels unit registered its highest-ever June quarter performance, with revenue growth of 8.1 per cent amid a high base. 

Its paperboard and packaging business saw a decline of 6.5 per cent in revenue owing to subdued demand, a high base and falling global pulp prices.

ITC to demerge hotels business 

ITC's board recently cleared a proposed demerger of its hotels unit into a separate company, which is expected to be listed in about 15 months.

As part of the planned demerger, investors will get one share of the ITC hotels business for every 10 shares held in the parent company.

Here's what analysts recommend on ITC shares after the earnings announcement: 

According to Jefferies, which maintained a 'buy' rating on ITC after the cigarette maker reported its quarterly numbers, the biggest debate is whether the best is behind for the company. 

The brokerage, whose target price of Rs 520 implies an upside of 18 per cent in the stock, earnings growth will moderate for ITC but the stock may continue to offer value and provide high earnings visibility to investors. 

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