Why ITC Share Price is Falling

Blue chip stocks are the cornerstone of buy-and-hold portfolios. These stocks are renowned for their wide moats, reliable dividends, and stable earnings, making them a choice for long-term investors seeking resilience.

Despite exposure to market fluctuations, these stocks exhibit a remarkable ability to recover swiftly, establishing them as low-risk investments.

Their role in providing stability during market turbulence is pivotal, acting as a stabilizing force for investment portfolios.

The appealing risk-reward profiles of top blue-chip stocks position them as a preferred option for conservative investors.

While known to be a defensive stock, one such FMCG giant bluechip's shares have lost 13% in a month. The stock is none other than FMCG Giant ITC.

Here's what dragged this bluechip lower.

#1 BAT Stake Sell

The decline in ITC shares can be attributed to British American Tobacco's (BAT) plans to pare its stake in the company. BAT has roped in Wall Street banks to help with the same.

The company is looking to raise Rs 210 billion (bn) (US$ 2.5 bn) by selling a 3.5 to 4% stake in the Indian tobacco-to-consumer goods conglomerate.

As of December 2023 disclosures, BAT holds the largest share in ITC, with ownership exceeding 29%

The British tobacco seller has held a stake in India's ITC since the early 1900s and is the largest shareholder in the company, with more than a 29% stake.

Its shareholding in ITC is valued at Rs 1.5 trillion (tn), based on Monday's closing price of Rs 406.9 apiece.

The final value of the sale would depend on the market value at the time of the transaction.

As per BSE, BAT's shareholding in ITC is held via Rothmans International Enterprises (1.2%), Myddleton Investment Company (3.9%), and Tobacco Manufacturers (India) (23.9%).

BAT is seeking to divest its stake, driven in part by its substantial debt exceeding US$ 40 bn and a recent write-down of US$ 32 bn in the US.

However, BAT's request to sell ITC shares has been pending RBI approval for several months. As these shares were acquired before the enactment of the Foreign Exchange Management Act (FEMA), BAT, being a multinational entity, requires clearance from the banking regulator to repatriate funds after a stake sale.

BAT still has no clarity from the regulator but remains engaged with RBI.

Following the announcement of the stake sale, ITC shares have been on a downward trajectory.

#2 Operationally Weak Q3 Result

Notwithstanding a higher-than-estimated profit net profit in the December quarter, ITC has faced a setback in an operationally weak quarter led by sluggishness in the cigarette, agri and paperboard businesses.

For the December 2023 quarter, the company reported a 1.8% YoY rise in revenue at Rs 180.3 bn.

The diversified conglomerate reported a 6% growth in its consolidated net profit at Rs 53.4 bn for the December 2023 quarter. The same stood at Rs 50.1 bn in the year-ago period.

The company had reassessed its provisions relating to uncertain tax positions for earlier years based on a favourable order of the Supreme Court during the quarter.

This resulted in a credit of Rs 4.7 bn in the current tax expense for the quarter and nine months ended December 2023. The board recommended an interim dividend of Rs 6.25 per share for the FY24.

Amid the macroeconomic and operating environment and high base effect in some operating segments, the company delivered a resilient performance during the quarter.

The cigarettes segment witnessed consolidation on a high base after a period of sustained growth momentum.

The FMCG and hotels segment grew YoY with the latter producing its best-ever quarter. Meanwhile, the paperboards, paper and packaging (PPP) segment declined 9.7% YoY on the back of low-priced Chinese supplies in global markets and subdued domestic demand and high base effect. The agri-business was impacted by trade restrictions on agri commodities.

The operating environment for agri-business remained challenging due to policy interventions of the government.

Revenue from agribusiness was at Rs 32.7 bn, lower from Rs 33.1 bn a year ago.

The pre-tax profit of the segment was at Rs 3.8 bn compared to Rs 4.4 bn in the year-ago period.

Revenue from the paperboards, paper, and packaging segment was at Rs 20.8 bn in Q3FY24, lower than Rs 23.1 bn a year ago. Pretax profit was at Rs 2.9 bn in the quarter compared to Rs 6.1 bn a year back.

This further dragged the stock lower.

What Next?

Looking ahead, ITC Foods, the branded packaged foods division of ITC, envisions a resurgence in demand for the dairy and beverage sector within the next six to nine months. This optimistic outlook is driven by expectations of a warm summer and favourable dairy conditions.

Recognizing the rising consumer preference for natural and healthier products such as coconut water and smoothies, alongside traditional options, the company is actively working on expanding its rural distribution.

In its future strategy, the company is prioritizing the utilization of digital technology to optimize its supply chain, ensure consistent product quality, adhere to food regulations, and bolster food security.

Furthermore, there are plans to expand its presence in the Asia-Pacific region, with a specific focus on the packaging and paperboard sectors.

How ITC Shares Have Performed Recently

ITC shares have fallen 14% in the last one month. In past five days the stock is down 2%.

Over the six months the stock is down 10%.

ITC touched its 52-week high of Rs 499 on 24 July 2023 and a 52-week low of Rs 367.4 on 17 March 2023.

It stands among the 4 stocks declaring up to 1,400% dividend in February 2024.

About ITC

ITC is India's biggest cigarettes & one of the largest fast-moving consumer goods (FMCG) company. It has 78% market share in cigarettes and presence in other business segments such as staples, biscuits, and personal care products.

The company is also present in paperboard, printing & packaging business.

The company completed 100 years in 2010 and it employs over 36,500 people at more than 60 locations across India and is part of the Forbes 2000 list.

To know more, check out ITC company fact sheet and quarterly results.

For a sector overview, read our FMCG sector report.

You can also compare ITC with its peers:

ITC vs VST Industries

ITC vs Godfrey Philips

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