ITC Ltd reported an in-line set of Q3 results, but its strong numbers for the hotels segment were partly over-shadowed by cigarette volume degrowth on a high base and continued pressure in agri and paper segments. A few brokerages have cut their earnings estimates by 3-5 per cent following ITC's Q3 results but stayed positive on the long-term prospects of the FMCG major. ITC's stock valuations stay inexpensive, they said while retaining 'Buy' on the scrip.
Post the Q3FY24 performance, Antique Stock Broking has cut its estimates by 3-8 per cent for FY24- FY26 but stayed positive on ITC’s performance, driven by the momentum in cigarette market share gains on superior execution supported by strong momentum in FMCG and Hotels business. It maintained 'Buy' on the stock with a revised target price of Rs 499 from Rs 532 earlier, based on FY26 estimates, implying PER of 25 times.
Emkay Global said it stays positive on ITC on account of better execution and macros supporting its diversified businesses. The domestic brokerage said while the long-term outlook remains promising, navigating near-term challenges is crucial.
"Cigarettes’ estimated volume decline of 2 per cent in Q3FY24 is discouraging (affected by the high base), and we are hopeful of recovery in Q4FY24E. Non-cigarettes business had a muted show with 1 per cent sales growth and 10 per cent EBIT decline in Q3FY24. On a low base of FY24, we see double-digit growth over FY25-26. The board approved interim dividend of Rs 6.25 per share. We have revised our earnings down by 3-5 per cent over FY24-26E, as we factor in near-term demand stress. We have also revisited our target price, assigning multiples in-line with sector peers," Emkay said.
This brokerage reduced its December 2024 price target on ITC to Rs 520 from Rs 550.
The resilient nature of ITC’s core business amid an uncertain environment in the sector, along with a 3-4 per cent dividend yield, makes it a good defensive bet in the ongoing volatile interest rate environment, said Motilal Oswal Securities.
"The earning CAGR at the PBT level stood at 8.5 per cent over FY18-23. We expect ITC to post a 7 per cent earnings CAGR over FY24-26. We reiterate our BUY rating with a TP of INR 515, based on SoTP valuation," it said.
Nuvama Institutional Equities said it liked the hotel business performance as the segment posted its best-ever quarter with segment revenue up 18 per cent YoY and Ebitda margin of 36.2 per cent driven by higher RevPAR, operating leverage, and strategic cost management initiatives.
"FMCG-other business delivered resilient performance amid slowdown in consumer demand; Staples, Dairy, Beverages, Fragrances, Personal Wash, Homecare, Agarbattis, Classmate Notebooks and Pens drove growth in Q3. Ebitda margins rose 100 bps YoY to 11 per cent driven by premiumisation, supply chain agility, judicious pricing actions, digital initiatives, and strategic cost management initiatives," it said.
What Nuvama did not like was Cigarettes segment's consolidation on a high base with net revenue up a mere 2.3 per cent YoY. "Agri business (down 2.2 per cent YoY)/PPP (down 9.7 per cent YoY) business continued to remain under pressure in Q3. Paper EBIT margins dipped 51.7 per cent YoY due to sharp drop in realisations and unprecedented surge in domestic wood costs. Competitive intensity remained high in categories such as biscuits, snacks, noodles and popular soaps. While certain commodity prices declined YoY, the cost table remains elevated; commodities such as wheat, maida, sugar, etc witnessed a sequential uptick in prices," said.
This brokerage has cut FY25 and FY25 EPS estimates by 5.2 per cent each and suggested a target of Rs 535 from Rs 560 earlier.
"While there is no material change in FY24 EPS, we reckon that EPS growth in FY25 could be in single digits if Cigarette volume and EBIT growth remain relatively muted in the near term even as they are expected to recover subsequently. Valuation of 26 times on FY25E EPS and 23 times on FY26E EPS are inexpensive, considering ITC’s potential for healthy earnings growth given its size and impressive return ratios of over 30 per cent. We maintain BUY on ITC," Nirmal Bang said.
This brokerage finds the stock worth Rs 520.x
Also read: ITC Q3 net profit rises 6.5% to Rs 5,335 cr, dividend declared at Rs 6.25 per share