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Our Bureau The shares of ITC crashed about 5 per cent on Wednesday to a low of ₹275 on the BSE after the company’s Q3 earnings failed to impress market participants. The stock closed at ₹277.7, down 4.16 per cent, over the previous day’s close.
ITC reported a 3.84 per cent increase in standalone net profit to ₹3,209.07 crore for October-December 2018, compared with ₹3,090.20 crore recorded in the year-ago period. The company has reported a growth of 15 per cent in its standalone revenue at ₹11,228 crore (net of excise duty) in Q3 FY19, against ₹9,772 crore in Q3 FY18.
The Kolkata-based company said that revenue from its cigarettes segment witnessed a 9.6 per cent growth.
ITC, in fact, pulled the BSE Sensex and the NSE Nifty 50 down after analysts said the company’s EBIDTA margin was lower than estimated. According to Bloomberg , ITC carries a weightage of 6.5 per cent on the Sensex and about 5.5 per cent on the Nifty.
Farm biz effect
The decline in net margin was on account of exceptional gain in the corresponding quarter. Profit margins are disappointing mainly due to the farm business, said analysts.
According to ICICI Direct Research, ITC’s cigarette segment has delivered third consecutive quarter of positive volume growth.
“We believe the company should be able to end the year at a full year volume growth of 4-5 per cent,” it said, and added that the company should be able to end the year with EBITDA margin of 6 per cent, as Q4 FY19 will likely be the most profitable quarter for the company.
“We continue to remain positive on the company given robust and encouraging growth numbers coming from its core segments,” it further said.
Naveen Trivedi, Analyst, HDFC Securities, said: “Cigarette volume trajectory will sustain on the back of favourable base (-3 per cent in Q4 FY18), no tax hike in the last 18 months and improving demand (mainly in rural).
Unfair discount
“ITC currently trades at 26x and 23x FY-20E and FY-21E EPS. The sector ex-ITC is trading at nearly 40x FY-20E EPS, implying an unfair discount of 38 per cent. We are encouraged by healthy operating performance reported during the quarter despite punitive taxes,” Naveen Trivedi said.
For Anand Rathi, overall, the results are in line with its expectations in terms of revenue and slightly below expectations in terms of margin.
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