ITC share price up 5% after Q2 results; Analysts say 'Buy', revise target

ITC's consolidated profit for the period came in at Rs 5,054.4 crore, up 1.8 per cent year-on-year (Y-o-Y), from Rs 4,964.5 crore in the same quarter a year ago (Q2FY24).

ITC share price: FMCG behemoth ITC share price was buzzing in trade on Friday, October 25, 2024, as the scrip rose up to 4.58 per cent to hit an intraday high of Rs 493.50 per share. ITC is also the top gainer on both BSE and NSE. 

 

This comes after ITC reported a healthy set of Q2FY25 results (September quarter). The company’s consolidated profit for the period came in at Rs 5,054.4 crore, up 1.8 per cent year-on-year (Y-o-Y), from Rs 4,964.5 crore in the same quarter a year ago (Q2FY24).

 

ITC’s revenue from operations (less excise duty) surged 16.7 per cent Y-o-Y to Rs 20,735.9 crore in Q2FY25, from Rs 17,774.5 crore in Q2FY24. 

 

At the operating front, earnings before interest, tax, depreciation and amortisation soared 4.8 per cent annually to Rs 6,761.8 crore in Q2FY25, from Rs 6,454.24 crore in Q2FY24. 

 

However, margins took a dent as they squeezed 370 basis points (bps) to 32.6 per cent in the September quarter of FY25, from 36.3 per cent in the September quarter of FY24. 

ITC’s cigarette segment saw a 7.3 per cent rise in revenue, with profit before interest and tax (PBIT) growing 5.1 per cent year-on-year. 

The FMCG giant’s cigarette volumes rose 3 per cent during the quarter under review. 

 

“As seen in the past, stability in taxes on cigarettes, backed by deterrent actions by enforcement agencies, enables volume recovery for the legal cigarette industry from illicit trade leading to higher demand for Indian tobaccos and bolstering revenue to the exchequer from the tobacco sector.” ITC said in a statement.

 

Apart from that, in the Hotels segment, revenue grew 12.1 per cent year-on-year, with a robust two-year compound annual growth rate (CAGR’ of 16.5 per cent. PBIT for the segment increased 20.2 per cent year-on-year, reflecting a two-year CAGR of 34.2 per cent.

 

Meanwhile, the Agri Business segment performed exceptionally well, with revenue surging 47 per cent annually, driven by growth in leaf tobacco and value-added agricultural products, leading to a 27.5 per cent increase in PBIT.

 

Conversely, the Paperboards, Paper & Packaging segment faced challenges from low-priced Chinese imports, soft domestic demand, and rising domestic wood costs. Despite these hurdles, the segment achieved a 2.1 per cent year-on-year revenue increase, supported by strong export growth and a 7 per cent quarter-on-quarter improvement. 

 

Given this, here’s what brokerages have to say about ITC Q2 results:

 

  ICICI Securities   

ITC's Q2FY25 results showed solid revenue growth across segments, with cigarette volume growth stabilising at approximately 3 per cent Y-o-Y despite necessary price increases to manage cost inflation, analysts at ICICI Securities said. The unchanged taxation on cigarettes is expected to bolster market share against the illicit sector, which constitutes about 25 per cent of the overall market. 

 

The FMCG segment showed resilience with a 5 per cent annual growth, although margins were affected by commodity inflation. Overall, the formal cigarette market, analysts believe, is well-placed for further volume growth, provided current conditions remain stable. However, margins are under pressure due to rising commodity costs and a higher share of lower-margin agricultural business..

 

Therefore, analysts at ICICI Securities have cut their earnings estimates by 7 per cent for FY25E-FY26E, modelling revenue/Ebitda/PAT CAGRs of 12 per cent/10 per cent/7 per cent over FY24-26E. They, however, maintained ‘Add’ with a DCF-based revised target price of Rs 500 (earlier Rs 530). At this target price, the stock will trade at 26x P/E multiple Mar’26E, analysts added. 

 

Key downside risk, analysts noted, is tax hikes much ahead of inflation leading to volume pressure (on cigarettes) as price elasticity is still unfavourable.

 

Nuvama Institutional Equities 

Those at Nuvama Institutional Equities said that ITC’s Q2FY25 revenue increased 16.8 per cent annually, surpassing estimates, largely driven by the Agri business. While Ebitda and PAT aligned with expectations, cigarette net revenue and volumes rose 7.3 per cent and 3.3 per cent Y-o-Y, respectively, outpacing its forecast of 2.5 per cent. 

 

Given the strong performance in leaf tobacco exports, analysts have raised their FY25E/26E/27E EPS estimates by 2 per cent/2.7 per cent/3.2 per cent, resulting in a new target price of Rs 585 (up from Rs 580). Analysts, however, have maintained their ‘Buy’ rating.

 

Emkay 

  Analysts at Emkay maintained ‘Add’ rating on ITC due to its strong competitive position, though short-term margin pressures require improved execution. Margin challenges are expected to persist across cigarettes, FMCG, and paper segments. Considering these factors, the brokerage has kept the target price unchanged at Rs 520.

 

Nomura  

The Japan-based brokerage Nomura has reaffirmed its ‘Buy’ rating on ITC with a target price of Rs 555, according to reports. The brokerage noted strong sales performance in Q2, although margins across all segments faced pressure during the quarter.