ITC earnings review: Industry-leading growth in Q4 but challenges remain

ITC's Q4 earnings broadly came ahead of estimates prompting brokerages to maintain their bullish stance. In the last quarter, profit rose 0.8 per cent YOY to Rs 4,875 crore (excluding exceptional gain). The company logged a one-time exceptional item of Rs 15,179 crore from discontinued operations which added to its bottomline. 

However, EBIT margins contracted 270 bps to 6.3% (estimates 6.6%). This was due to rising competition, higher commodity costs, and weak demand, which led to a 28% YoY decline in EBIT for the quarter. 

Paper business struggled due to weak demand, rising low-cost Chinese imports, falling pulp prices, and increasing input costs.

On the positive side, Nuvama believes that palm oil prices have started falling and expects the company to reap its benefits in FY26. 

"Agri exports shall stay strong on the back of a good monsoon and capacity expansion," said the brokerage. The profitability (EBIT) for FMCG (decreased 28% YoY) and paperboards, paper & packaging (down 30.6% YoY) was weak. Agri business’s revenue grew 18% YoY while its profit surged 26% YoY. However, Nuvama trimmed its price target to Rs 532 from the earlier Rs 571 while retaining its buy call for the FMCG stock. 

Key risks to the assumptions 

The brokerage cited high incidence of taxation and strict regulatory norms on cigarette usage in public and packaging as threats to cigarette volume growth.

Growing contraband market of cigarettes also poses a significant threat to the cigarettes business.

Slowdown in macroeconomic environment is a major threat to the hotels business.

Motilal Oswal raised its price target by 23% to Rs 525, citing steady performance in ITC’s core business of cigarettes. "With stable taxes on cigarettes, we anticipate sustainable growth in this business. While the FMCG sector is seeing moderation due to the rising commodity prices, ITC is enjoying industry-leading growth over peers due to its category presence (large unorganized mix, under-penetrated, etc.)," said the brokerage. 

Global brokerage Morgan Stanley has maintained an 'Overweight' call on ITC stock with the target price of Rs 500. 

Earnings beat estimates with topline coming ahead across businesses. Margins were better across businesses, except paper. 

Slower EBIT growth in the cigarette business was due to inflation which was partly mitigated by improved mix. 

The paper business was impacted by muted domestic demand, Chinese & Indonesian supplies and rising prices of wood.