ITC Ltd. reported a fall in net profit in the third quarter of the current financial year, even as it met street expectations. Standalone net profit fell nearly 10% to Rs 5,089 crore in the October-December quarter, compared to Rs 5,638 crore in the year-ago period, according to a stock exchange filing on Thursday. Analysts consensus estimates compile by Bloomberg projected Rs 5,234 crore.

The company had to make a one-time provision of Rs 273.83 crore with respect to increase in liability of gratuity and compensated absences, primarily arising due to change in definition of wages under the New Labour Codes.

ITC Q3 Results (Standalone, YoY)

• Revenue up 6% at Rs 18,017 crore versus Rs 17,053 crore (Estimate: Rs 18,286 crore)
• EBITDA up 7.6% at Rs 6,271 crore versus Rs 5,828 crore (Estimate: Rs 6,273 crore)
• Margin at 34.8% versus 34.2% (Estimate: 34.3%)
• Profit down 10% at Rs 5,089 crore versus Rs 5,638 crore (Estimate: Rs 5,234 crore)

The board approved an interim dividend of Rs 6.5 per share.

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Image used for representative purpose only.
| Photo Credit: Reuters

The logo of ITC. File
| Photo Credit: Reuters

Indian FMCG and tobacco giant ITC’s shares jumped more than 8% on March 13, after top shareholder British American Tobacco’s $2 billion stake sale in the company went through smoothly, removing a key overhang on the stock.

In India’s third-largest block deal, BAT completed the sale of 436.9 million shares, or roughly 3.5% of ITC’s outstanding shares, for about $2 billion on March 13, sending ITC’s shares up as much as 8.3%.

BAT would still keep a stake of over 25% in ITC, which Jefferies analysts say will help it hold on to its board seats and influence over the company’s strategic direction. BAT said on Monday that it was evaluating a possible disposal of a “small part” of its shareholding in ITC, without disclosing financial terms.

The lack of details made investors nervous, leading to ITC slipping more than 2% earlier this week, bringing its losses to 2.4% since Feburary 8, when BAT first said it would sell the shares.

Wednesday’s gains have flipped the stock to gains of nearly 4% since the stake sale plan was announced. BAT shares have added over 5% this week as it also announced a $895 million share buyback.

“There was an overhang of BAT holding stake in ITC. Now that the liquidity worry of this overhang is over, the stock has gone up,” Amit Purohit, vice president at Elara Capital, said.

Analysts at HSBC and Morgan Stanley echoed the opinion.

The fall after the stake sale announcement implies an attractive valuation for ITC’s cigarette business, and creates a buying opportunity, even as cigarette taxation overhang persists, HSBC said in a note, upgrading the stock to “buy” from “hold”.

Cigarettes are ITC’s largest business, accounting for more than 40% of its revenue. The company has been working to consolidate its business, with plans to spin off its hotel business. “We believe BAT’s stake sale will clear the uncertainty around stock performance and expect ITC’s stock outperformance to resume after the stake sale,” Morgan Stanley analysts said.