ITC share price falls almost 3% post Q2 results; should you buy the stock? Here’s what top brokerages say
ITC on Thursday reported a 10 per cent YoY rise in its standalone net profit to ₹4,927 crore in the September quarter of FY24. ITC share price has gained about 26 per cent in the last one year against a 10 per cent gain in the equity benchmark Sensex.
ITC share price fell 2.68 per cent to close at ₹438.25 on Friday, October 20, on BSE, a day after the company released its July-September quarter (Q2) earnings. ITC share price opened at ₹449.55 against the previous close of ₹450.30 and fell 2.9 per cent to the intraday low of ₹437.30 in Friday's trade.
ITC share price has gained about 26 per cent in the last one year against a 10 per cent gain in the equity benchmark Sensex. The stock hit its 52-week high of ₹499.60 on July 24 this year and its 52-week low of ₹325.35 on December 23 last year on the BSE.
ITC Q2 results
ITC on Thursday reported a 10 per cent YoY rise in its standalone net profit to ₹4,927 crore in the September quarter of FY24. The company's revenue from operations stood at ₹17,705.08 crore against ₹17,159.56 crore a year ago period.
ITC's September quarter growth was led by its cigarettes and hotel business segments. Moreover, the company reported strong performance in its FMCG segment with an 8.3 per cent YoY rise in segment revenue in Q2 FY24.
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Brokerages remain positive about ITC
Most brokerage firms retained their positive views on ITC stock after the company's impressive show in the cigarette and FMCG segments. Let's take a look at what they say:
Motilal Oswal Financial Services
Motilal Oswal maintained its buy call on ITC stock with a target price of ₹535, implying a 19 per cent upside target and said ITC's earnings visibility remains better than that of peers.
"At a time when uncertainty looms over the industry, led by high inflation, unpredictable monsoons, and continued weak rural sales, ITC’s recovery in cigarette volumes offers decent earnings visibility at reasonable valuations and attractive dividend yield," Motilal Oswal said.
"ITC demonstrated a healthy 23.5 per cent EPS (earnings per share) growth in FY23 and we expect an EPS CAGR of nearly 12 per cent over the next two years as well. ITC’s earnings outlook is better than other large-cap staple players in FY25 and also in terms of a two-year CAGR ending FY24," said the brokerage firm.
Nuvama Wealth Management
Nuvama Wealth Management maintained its buy call on the ITC stock with a target price of ₹560, implying a 24 per cent upside from the stock's Thursday's (October 19) closing of ₹450.30 on the BSE.
Nuvama pointed out that ITC posted decent growth across most segments. It expects legal cigarette players to gain market share from illegal players (almost one–fourth of the market) given a nominal tax hike in the union budget for FY24, followed by two consecutive years of no-tax hikes.
Being the largest legal player, ITC would be a key beneficiary, Nuvama said.
In the FMCG business, the company would like to see market share gains across most categories. EBITDA margin expansion is on the right trajectory.
"ITC continues to gain in the cigarette market as organised share rises. Other segments have been scaling up with portfolio and network expansion, which augurs well for the company," said Nuvama.
Also Read: Consumer firms get an urban glow in Q2
Nirmal Bang
Nirmal Bang, too, has maintained a buy call on the stock with a target price of ₹525.
The brokerage firm pointed out that ITC's cigarette volume growth of about 4 per cent YoY was much better than its estimate of a 2 per cent YoY decline. Cigarette volume thus remained resilient at a four-year average of mid-single digit, much higher than the flattish to declining trends of the past.
Cigarette EBIT growth was healthy at 8 per cent YoY and is expected to be healthy in the subsequent quarters, Nirmal Bang underscored.
The brokerage firm believes that ITC's earnings CAGR during FY23-FY25E may be near 12 per cent.
"Riding on the back of EPS (earnings per share) CAGR of about 11 per cent over the preceding four years, ITC’s net profit growth does seem to have turned the corner after the struggles of the past," Nirmal Bang said.
"We see the value unlocking from the hotel business demerger as a welcome move, especially if it is eventually followed by the demerger of the other FMCG and IT services businesses as well. If the same fructifies, rerating will be sharper going forward," said Nirmal Bang.
Emkay Global Financial Services
Emkay also maintained a buy call on the stock but cut the target price to ₹525 from ₹535 earlier.
Emkay observed that ITC’s Q2 earnings delivery stood in line, but topline growth of 3 per cent stood below estimates. Non-cigarette operations had a muted show, affected by weakness in the paper business.
"We see near-term stress from (a) margin pressure in cigarettes and (b) weakness in the paper business. Adjusted for this, we continue to see a firm long-term outlook for ITC. After the first half (H1FY24) results, we affect the following changes: (a) cut cigarette earnings by 1 per cent, (b) factor in continued restriction in wheat and rice exports for the agribusiness, and (c) about 15 per cent cut in EBITDA for the paper business for FY24," Emkay said.
Apart from these, among the global brokerage firms, Morgan Stanley maintained its 'overweight' rating on ITC with a target price of ₹493, as reported by CNBC-TV18.
CNBC-TV18 quoted Morgan Stanley saying that ITC's Q2 EBIT for the core business of cigarettes and FMCG was ahead of expectations. Cigarette volume growth delivery remains the key to outperformance.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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