ITC's March quarter results were a mixed bag. What analysts liked was the performance of Hotel and FMCG - Others segments. What they did not like was a steep fall in cigarette business margin due to jump in tobacco prices, along with increase in taxes. Net-net, they felt FY25 performance is likely to be marred by inflationary stress in cigarettes, muted agri business outlook and paper business down cycle.
Better monsoons would improve prospects for ITC’s agri business and its cigarette margin outlook for FY26, they said.
"ITC saw a mixed performance in Q4, with cigarette estimated volume up 2 per cent (in-line). But driven by weakness in agri-business revenue and profitability in paper, non-cigarette business put up a muted show, with 2 per cent sales dip and 15 per cent EBIT drop in Q4FY24. Factoring-in the stress in cigarette margin, we trim our SoTP based target price to Rs 510 per share," Emkay Global said.
Nirmal Bang said ITC’s Q4FY24 results were slightly below expectations on all fronts, led by lower-than-expected revenue in Cigarettes, Agri and Paper Board businesses.
"We reckon that EPS growth in FY25 could be in mid-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 23 times FY26 EPS is inexpensive considering ITC’s potential for healthy medium term earnings growth given its size and impressive return ratios of over 30 per cent," said Nirmal Bang Institutional Equities. This brokerage has maintained its 'Buy' rating on ITC Ltd with a target of Rs 520.
Post obtaining no-objection from stock exchanges, the company filed the Scheme of Arrangement for demerger with the National Company Law Tribunal (NCLT). NCLT has further directed convening a meeting of the company’s shareholders on June 6 to consider and approve the Scheme.
The Hotels segment's pipeline remains healthy as ITC is targeting 27 hotels in next 24 months. Nuvama said ITC's hotel business posted its best-ever quarter with segment revenue up 15 per cent YoY and reporting Ebitda margin expanding 340 bps YoY 38.2 per cent, driven by higher RevPAR, operating leverage, and strategic cost management initiatives.
"FMCG – Others revenue grew 7.2 per cent YoY led by growth in staples, biscuits, snacks, dairy, homecare, agarbatti, education and stationery products. FMCG – Others Ebitda expanded 94 bp to 11.6 per cent driven by premiumisation, supply chain agility, judicious pricing actions, digital initiatives and strategic cost management. Across FMCG – Others, ITC had multiple launches," Nuvama said.
The brokerage said cigarette volumes may remain range bound in low-to-mid-single digit for FY25/26E on the back of subdued demand conditions in overall consumption space. High raw material inflation is a key concern for the company and rupee depreciation continues to be a pain point.
"Demand scenario remains mixed with mass segment under pressure across cigarettes and FMCG. We expect 4 per cent cigarette volume growth in FY25/26 in a steady state while FMCG will continue to expand margins by 80-100bps annually. Although Hotels have, a high, base, strong demand will continue to drive growth. We expect paper margins to improve post 2Q only given high base in 1Q and tough operating environment. Agri business margins will expand in 2H25 only due to high leaf tobacco prices.," said Prabhudas Lilladher.
This brokerage has a target price of Rs 491 on ITC.
Motilal Oswal said there are no material changes to its EPS estimates for FY25 and FY26. The resilient nature of its core business amid an uncertain industry environment, and its 3-4 per cent dividend yield, make ITC a good defensive bet in the ongoing volatile interest rate environment, it said. This brokerage has a target price of Rs 515 on ITC.