ITC Share price today: Sharekhan maintain Buy with a revised price target of Rs 265

ITC Share price today: ITC's Q3 FY21 performance was largely in-line with street expectation. Revenue grew by 4.7% yoy to Rs 12580 cr and adjusted PAT declined by 6% yoy to Rs 3663 cr (OPM declined by 437 bps to 34.0%). The cigarette business’s net revenue (excluding the excise duty) declined by 8% yoy with volume decline of 7% (vs volume decline of 12% in Q2 FY21). Cigarette business PBIT decreased by 8% in Q3, better than 16% decline in Q2. Sharekhan maintains Buy rating with a revised price target of Rs 265. ITC share price is trading at Rs 218, down Rs 8 or -3.6%..

Non-cigarette FMCG business revenue of ITC grew by 11% on a comparable basis with sustained demand for health and hygiene products and double-digit growth in the snacking and noodles category. EBIDTA margin of the non-cigarette FMCG business improved by 150 bps to 9.2% on a yoy basis (Including Sunrise brand, it is 10%).

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ITC Agri business revenue grew by 18.5% to Rs 2482 cr, while business margin declined by 230 bps due to adverse mix. Hotel business turned EBIDTA positive in Q3 due to sequential improvement in revenue and focus on cost reduction (down by 44% in Q3). With no hike on cigarettes in the Union Budget, we do not expect any price hike in the cigarette portfolio, which will help cigarette sales volume to improve in the coming quarters.

Demand for hygiene and essentials products of ITC (including atta and biscuits)is expected to normalise in the coming quarters. Improving penetration of key categories, higher rural demand, recovery in out-of-consumption categories, and strong traction to new launches would help the non-cigarette FMCG business to maintain double digit revenue growth in the coming quarters.

Margin expansion of the non-cigarette FMCG business of ITC would sustain with scale up in revenue of products/categories and better revenue mix. With receding virus scare and mobility improving, pent-up demand would help the hotel business to post strong performance in FY2022. ITC declared interim dividend of Rs 5 (half of last fiscal dividend of Rs 10.15)

ITC Key positives:

Margins of the non-cigarette FMCG business improved by 150 bps yoy to 9.2%
Savlon reported revenue of Rs 1000 cr in 9M of FY21
Hotel business EBIDTA returned to the positive trajectory due to focused cost-saving initiatives
Agri business revenue grew by 18.5% in Q3 versus 13% growth in Q2

ITC Key negatives:

Paperboard, paper, and packaging (PPP) revenue and PBIT decreased by 5% and 14%.

ITC Key risk:

Any increase in tax on cigarettes or government implementing policies to curb tobacco products consumption or slowdown in consumer demand would act as key risk to our earnings estimates.