Why Does Jefferies Recommend Buying ITC After its Earnings

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Why Does Jefferies Recommend Buying ITC After its Earnings
Credit: © Reuters.

By Malvika Gurung

Investing.com -- The Indian cigarette manufacturer, ITC (NS: ITC ) Limited reported its September ended quarter’s earnings result, which shows that cigarette volumes have witnessed a boom in recovery and have almost hit pre-Covid levels, in terms of exit volumes.

The conglomerate has reported a 14% jump in the standalone profit on a quarterly basis at Rs 3,697.18 crore for the September quarter, while sequentially this figure has risen by 23%. The Kolkata-based company’s standalone revenue has grown 12% to Rs 13,553 crore QoQ and 5% compared to Q1 FY22. Its total expenses also grew by 11.9% in the September quarter, on a YOY basis to Rs 10,258.26 crore.

ITC has reported a broad-based recovery in sales across markets and channels, attributing to a reduction in the intensity of the pandemic, increasing pace of vaccination, improvement in consumer demand and market sentiment, and resumption of normalizing operations across industries.

However, the company also reported that unprecedented inflation in key input costs, conjugated with significant disruptions in global supply chains and logistics has impacted ITC’s operating environment.

ITC has reported that its cigarette segment has bagged a 10.2% rise in revenue at Rs 5,642 crore on a QoQ basis, backed on the launch of new products and an increase in consumer outdoor activities due to normalcy resumed in convenience stores.

ITC’s hotels business has benefited the most from the easing of pandemic restrictions, as its customer occupancy has spurred almost thrice on a yearly basis. Its revenues increased to Rs 295 crore, compared to Rs 82 crore YoY.

However, the shares of ITC opened 1.9% lower at Rs 233.85 on Thursday, though brokerage firm Jefferies recommends a ‘Buy’ target on the stock, backed by exit volumes approaching pre-pandemic levels. It advises about the budget to be a key event, given an expert panel set up to decide on tobacco taxation.

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