ITC shares fall post Q2 results: Should you buy, hold or sell?

The September quarter results of ITC Ltd were a mixed bag but brokerages said its stock remains a 'Buy', thanks to stable cigarette business, decent earnings visibility at reasonable valuations and attractive dividend yield, in the backdrop of high inflation and continued weakness in industry-wide rural sales. A couple of brokerages have price targets for ITC in the Rs 470-560 range, suggesting 6-27 per cent  potential gains ahead.

Kotak Institutional Equities said ITC’s cigarette volume growth of 4.5 per cent YoY on a normalised base was impressive in the context of a weak demand environment for most consumption categories. The resilient growth in the past few quarters, it said, was aided by a stable tax regime and the government’s clampdown on illicit trade.

The FMCG segment growth at 8.3 per cent  YoY was robust, led by the scaling-up of power brands and progress in adjacencies and future categories, it said adding that ITC hotels’ occupancy moderated on a high base due to relatively fewer wedding dates in Q2 and pre-planned renovations.

"The agri business continued to be impacted by the ban on wheat/rice exports. Paperboards growth performance and profitability were sharply impacted by subdued demand conditions and weak prices," it said while suggesting a fair value of Rs 470 on the stock, up from Rs 467 earlier. 

Prabhudas Lilladher expects cigarette volume growth for ITC to stay in the 4-5 per cent range in H224.

"FMCG business is expected to gain from festive season, expected uptick in rural demand and scale economies. We believe Paper and Paperboard business is near bottom and expect QoQ margin improvement in coming quarters. We expect strong growth from Hotels and FMCG to sustain given benign input costs and strong demand outlook for both domestic and foreign travel," it said.

This brokerage has upped its target on the stock to Rs 492 from Rs 475 earlier, as it rolled forward its estimates to September 2025. ITC's valuations limit major downside, it said.

Motilal Oswal said ITC's cigarette business posted 4 per cent YoY volume growth in against its estimate of 6 per cent. The Other FMCG business saw a subdued demand and also faces heightened competition from local and regional players like other large FMCG companies, in the backdrop of commodity price deflation.

"At a time when uncertainty looms over the industry, led by high inflation and continued weak rural sales, ITC's recovery in Cigarette volumes offers decent earnings visibility at reasonable valuations and attractive dividend yield. We maintain our BUY rating with a target of Rs 535, based on 28 times FY25E EPS," the brokerage said.

Emkay Global sees near-term stress from margin pressure in cigarettes and weakness in the paper business. It, however, continued to see a firm long-term outlook for ITC. The broking firm has a target of Rs 525 on the stock.

Nirmal Bang Institutional Equities believes that ITC is trading at inexpensive valuation of 24 times FY25 EPS, given the likely double-digit earnings CAGR over FY23-FY25, healthy return ratios of 30 per cent-plus and a dividend yield of 3.5-4 per cent. It finds the stock worth  Rs 525.

Nuvama Institutional Equities has a target of Rs 560 on the stock as revenue momentum and major segments is doing well, the brokerage said.

 

 

 

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