ITC Q2 results: Hits & misses, outlook, stock price targets & more

ITC’s September quarter revenue growth at 16.8 per cent YoY beat consensus estimate driven by better-than-expected agri business numbers. But its Ebitda and profit after tax was largely in line with estimates.

Cigarette volumes growth at 3.3 per cent YoY was in line with 2.5-3.5 per cent growth analysts anticipated earlier.

What analysts liked in ITC Q2 results was the fact that cigarettes net revenue and EBIT increased 7.3 per cent and 5.1 per cent YoY driven by portfolio and market initiatives. Cigarettes volume growth of 3.3 per cent YoY was ahead of expectations, Nuvama said while noting that FMCG – Others’ revenue grew 5.4 per cent YoY despite muted demand and a severe monsoon. Staples, biscuits, snacks & frozen snacks, dairy, premium soaps, home care and agarbatti led the growth, it said.

"Agri business grew 47 per cent YoY driven by value-added agri products and leaf tobacco. The hotels business expanded 12.1 per cent YoY driven by F&B, retail and weddings. Hotels EBIT shot up 20.2 per cent YoY driven by higher RevPAR, operating leverage and strategic cost management," Nuvama said.

What analysts did not like in ITC Q2 results was FMCG – Others’ Ebitda that fell 35 bps YoY due to inflationary headwinds. The notebooks business struggled due to a high base and aggressive pricing by local competitors, particularly after paper prices dropped. The paper segment continued to see subdued showing with 2.1 per cent YoY growth, largely due to cheap Chinese supplies in global markets, including India.

Antique Stock Broking said ITC has outperformed its consumer peers, given its size of operation and the muted demand environment.

"We maintain Buy recommendation with a revised SoTP-based target price of Rs 557 (previously Rs 553), as we roll forward to FY27 estimates, implying a PER of 26x," it said.
 
Emkay Global maintained 'Add' on ITC given its strong competitive positioning, but said near-term margin stress demands enhanced execution. Margin pressure is likely to remain across cigarettes, other FMCG, and paper segments, the brokerage said while suggesting a target price of Rs 520 on the ITC stock.

Citi has reportedly suggested Buy on ITC with a target price of Rs 560. Nomura finds ITC worth Rs 555. It said sales performance was good but margins pressure was seen across segments.  
Morgan Stanley reportedly maintained its overweight stance on ITC with a target price of Rs 554.

Nuvama suggested a revised target price of Rs 585 from Rs 580 earlier.