Despite the sharp declines in the front-line indices during intraday trade on Friday, October 25, ITC shares have managed to surge nearly 5% to ₹493.50. This increase follows the company's September quarter results, which came in line with Street estimates due to strong performance in the hotel sector and robust growth in agribusiness. Core business performance was also largely in line with expectations despite several challenges.
With today's rise, ITC stock also snapped its seven-day losing streak. Following the company's healthy performance, brokerages retained their positive outlook on the company, with Motilal Oswal retaining its ‘buy’ rating on the stock at a target price of ₹575 apiece.
It said that the company's core business of cigarettes and FMCG is seeing steady growth. FMCG continues to enjoy industry-leading growth over peers due to ITC’s category presence (large unorganized mix, under-penetrated, etc.).
After the demerger of its asset-heavy hotel business, ITC's return profile is expected to improve significantly. Enhanced capital efficiency will boost operating cash flow, resulting in a healthy and sustainable dividend yield of 3-4%, it added.
Antique Stock Broking also maintained its 'buy' rating on the stock and revised the target price higher to ₹557 apiece from an earlier price target of ₹553 apiece. "In our view, ITC has outperformed its consumer peers, given its size of operation and the muted demand environment. Cigarette volume growth at about 3.5% was better (compared to peers), averting concerns of market share loss to growing competition, led by focused portfolio/market interventions," said the brokerage.
The brokerage noted that ITC's FMCG revenue has outperformed expectations, although profit margins were impacted by higher marketing investments. “The agribusiness sector experienced robust growth driven by leaf tobacco, while the hotel segment remained buoyant. Performance in the paper segment was subdued but showed sequential improvement,” it said.
Conversely, Kotak Institutional Equities maintained its 'Add' rating on the stock, slightly increasing its target price to ₹540 from ₹535.
The brokerage observed that ITC has restructured its trade marketing expenditures in cigarettes to enhance last-mile execution. It said the FMCG growth was led by staples, biscuits, snacks, dairy, premium soaps, home care products, and agarbatti, despite intense competition from local and regional players in noodles, snacks, biscuits, and popular soaps.
"The hotel business performed well despite a high base (G20). Paperboards’ performance remained impacted, with segment margin registering a new low (subdued realization, rise in ocean freight, and a surge in wood prices, partly due to unseasonal rainfall). Agribusiness growth was led by leaf tobacco and value-added products," said the brokerage.
The company reported a 17% year-on-year (YoY) increase in revenue from operations for the second quarter of the current fiscal year to ₹19,327.8 crore compared to ₹16,550 crore in the same period last year. Revenue from the total FMCG segment, which includes the cigarettes business, grew by 6.1% YoY to ₹14,463.15 crore, up from ₹13,631.46 crore in the corresponding September quarter.
Revenue from ITC's Hotels segment surged 17% YoY to ₹789.16 crore, driven by strong performance in the food and beverage, retail, and wedding segments. The agribusiness sector saw a remarkable increase of 46.57% YoY, reaching ₹5,845.25 crore in the September quarter of FY25, primarily due to growth in leaf tobacco and value-added agricultural products.
Additionally, ITC's revenue from the paperboards, paper, and packaging segment rose by 2.14% YoY to ₹2,114.18 crore. The company experienced a marginal increase of 3% YoY in consolidated net profit, totalling ₹5,078.43 crore in the September quarter.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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