1:10 Split, 3 Bonuses, 28 Dividends: FMCG Giant ITC Strong Pick; Sharekhan Recommends Buy On Stock For Rs 515

FMCG giant ITC looks like is finally out of its uncertain days, as brokerage Sharekhan believes the company's business and fundamentals are intact. The last risk factor for ITC was leading shareholder BAT's stake sale, however, Sharekhan believes the global tobacco company won't be selling any more stakes in the Indian FMCG player. Accordingly, Sharekhan has recommended buying ITC shares.

As per Sharekhan, major uncertainties hovering around the stock are over, as BAT has sold a 3.5% stake in the company. BAT is unlikely to reduce its stake below 25%.

In its research note, Sharekhan said, "British American Tobacco (BAT) sold its 3.5% stake in ITC at ~Rs. 400 per share through a block deal. Thus, uncertainties lingering around BAT's stake sale are no more, unless it decides to sell an additional stake in ITC in the coming months. Post the stake sale, BAT will hold a 25.5% stake in ITC and is unlikely to reduce its stake below 25% in the near term."

Moreover, Sharekhan is optimistic about the company as it said, the business fundamentals of ITC are intact with the core cigarette business likely to see consistent improvement in volume growth (recovered to 0.96x of FY2013 cigarette sales volume) in the backdrop of a stable cigarette tax environment, while the non-cigarette FMCG business is seeing consistent improvement in profitability in the past few years.

Further, Sharekhan's note added, "The company has strategies in place to achieve consistent double-digit earnings growth in the coming years. The stock has corrected by ~12% from its recent high and is trading at an attractive valuation."

Given that the uncertainties related to the stake sale are over, Sharekhan's note added, "We believe it is the right time to enter into a quality large-cap company in the FMCG space with attractive valuations and a good
dividend distribution policy."

On the valuation, Sharekhan's note said, "The stock has corrected by ~12% from its recent high and is trading at 22x and 20x its FY2025E and FY2026E earnings. Risk reward is favourable in the quality large-cap space with a consistent growth outlook and a good dividend payout policy. We maintain our Buy rating on the stock with an unchanged SOTP-based target price (TP) of Rs. 515."

Among the risks as per the brokerage could be the government's policies to curb tobacco product consumption or a sustained slowdown in consumer demand.

ITC Share Price:

On March 22nd, ITC's share price ended at Rs 428.45 apiece, up 1.71% with a market cap of Rs 5,34,768.59 crore on BSE. ITC is currently racing to become the largest FMCG company in India in terms of market value, which is currently held by HUL.

The stock's 52-week high and low is at Rs 499.60 and Rs 374.50 respectively.

ITC Corporate Affairs:

In Q3FY24, amidst a challenging macro-economic and operating environment as stated above, and a high base effect in some of its operating segments, the Company delivered a resilient performance during the quarter.

During the quarter, Gross Revenue stood at Rs.17,483 crores representing a growth of 2.1% YoY (excl. Agri-Business: up 3.9%) while PBT (before exceptional items) at Rs. 6,731 crores grew by 0.8% YoY. PAT grew by 10.8% YoY to Rs. 5,572 crores. Earnings Per Share for the quarter stood at Rs. 4.47 (previous year Rs. 4.06).

Additionally, since July 2001, ITC has delivered up to 28 dividends to its investors. The latest payout was last week of a 625% interim dividend aggregating to Rs 6.25 per share for FY24. In the last 12 months, ITC has paid up to Rs 15.75 per share dividend.

Meanwhile, ITC also turned ex-bonus for a 1-to-2 ratio on September 21, 2005. This meant that ITC awarded 1 new bonus share on the existing two equity shares. ITC further declared a 1:1 bonus issue in August 2010, and a 1:2 ratio in July 2016.

Lastly, the FMCG player announced a stock split only once in two decades. It was on September 21, 2005, when ITC turned ex-split for splitting its 1 equity share into ten equity shares. The face value was trimmed to Re 1 from Rs 10, hence, a stock split ratio of 1:10.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.