What should investors do with ITC post Q4; Buy, Sell or Hold?

Share price of cigarette major ITC rose 4 percent in the early trade on June 29 after the company posted its March quarter numbers.

The company on June 26 reported a standalone profit of Rs 3,797 crore for the quarter ended March, a year-on-year growth of 6.5 percent.

Revenue from operations fell 6.4 percent YoY to Rs 11,420 crore due to nationwide lockdown for more than a week in March. Revenue (excluding excise duty) dropped 9.6 percent to Rs 10,842.2 crore.

Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 8.9 percent to Rs 4,163.5 crore.

Jefferies | Rating: Buy | Target: Rs 240

Company's Cigarette volumes declined by 10 percent YoY, while packaged foods reported mid-single-digit growth.

The Cigarette business is on course to hit near pre-COVID levels. The Q1FY21 would be a washout, however company's dividend yield of 5% makes it attractive, reported CNBC-TV18.

Macquarie | Rating: Outperform | Target: Rs 232

The recovery in cigarette volume has been strong with June run-rate of cigarette volume at 85-90% pre-COVID-19 levels. Its FMCG business can be an outperformer amongst its peers in FY21.

There is a significant increase in dividend payout to 80%, while dividend yield is now > 5 percent, reported CNBC-TV18.

CLSA | Rating: Outperform | Target: Rs 220

The near-term looks tough. Its dividend payout increased to 88% in FY20 and earnings estimates see minor cuts in FY21-22, reported CNBC-TV18.

Motilal Oswal| Rating: Neutral | Target: Rs 190

ITC’s 4QFY20 results were lower than expectations. While our checks suggest that cigarette volumes have returned to near-normalcy now, the possibility of further GST increase is fairly high over the next few months.

We maintain neutral on account of (a) ITC’s overall profitability being highly dependent on cigarettes (which is likely to continue), and (b) risk to the already weak earnings growth projections over FY20-22E due to overhang of the GST increase.

Prabhudas Lilladher| Rating: Buy | Target: Rs 251

We believe ITC would be one of the key beneficiaries of an uptick in FMCG demand and is inching towards double-digit EBIDTA margins over the next 2-3 years.

We believe cigarette business has picked up well and might achieve exit volumes equal to pre-COVID levels, despite a 9% price increase in Feb. We expect tepid recovery in Hotels business for the next couple of quarters with losses in 1H due to low occupancy and higher fixed cost business.

ICICIdirect | Rating: Buy | Target: Rs 250

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 per share.