ITC shares up on Q1 results but still way below pre GST era highs. Should you buy more or sell out?

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Published: July 28, 2017 12:28:04 PM

The price hike under GST could adversely impact the cigarette volumes. While, there may be short term volatility in the stock, the long term prospects remain attractive.

ITC, ITC Q1 net profit, food business, FMCG business, FMCG business in india, FMCG business post GST, agri-business, cigarette business, cigarette business in indiaNomura Asset management and HDFC Securities have retained a buy rating on the stock, as the GST related changes are a thing of the past.

ITC Ltd’s shares rose today morning on the back of strong cigarette revenues in the fiscal first quarter, allaying fears of drop in sales volumes ahead of the implementation of GST. ITC Ltd shares were trading at Rs 290 on Friday on BSE, up 0.5% from the previous close, after rising to the day’s high of Rs 294.9. Yesterday, ITC reported a muted rise of 7.4% in its first quarter net profit, but said that cigarette revenues grew 7% — its third sequential quarter of improved performance. The net profit in the first quarter stood at Rs 2.560 crores as compared to Rs 2,384.67 crore reported in the previous fiscal in the same period.  The overall net revenues grew by  4.29 per cent to Rs 13,722.21 crore, as against Rs 13,156.68 crore in the corresponding quarter last fiscal.  What does the result mean for the investors?

Nomura Asset Management, a leading investment management company,  said that it maintains a buy, on the ITC stock, as the GST related uncertainty is out of the way. Just last week on Tuesday,  the ITC stock had seen the biggest fall in 25 years, shedding almost 15%, after the GST council had increased the cess on cigarettes. While speaking to ET Now, Nomura believed that this price hike could adversely impact the volumes of the cigarette division. The company has trimmed it’s estimates and revised the target price for the stock to Rs 356 per share, from the earlier Rs 389 per share taking into account the GST related changes.

HDFC Securities expects ITC to deliver 8% CAGR in the  cigarette  business over the next three years. According to the leading financial services intermediary, the cigarette business of ITC has grown at a CAGR of 10% in the last decade, despite punitive taxes.  In the report dated 28th July 2017, HDFC Securities maintained a buy rating on the stock with a target price of Rs 353. The report said that the near time volatility can continue due to GST, however, there’s long term potential.  The non-cigarette  business which currently constitutes 45% of sales has many levers, which would unlock in the coming years, according to the report.

Sandip Sabharwal, investment advisor remains bullish on the stock, and expects the diversified conglomerate to outperform the benchmark. Speaking to ET Now, he said that the Nifty 50 would go up to touch the 15,000 mark by 2019. The ace investor advised that the ITC stock is well placed, and the tax hikes under GST would be well absorbed in the future, making the stock an outperformer.

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