Brokerages upbeat on ITC despite muted December quarter

ITC in focus: Brokerage firm JM Financial has forecasted a potential 23 per cent upside for ITC, reiterating its ‘buy’ recommendation and maintaining an unchanged target price of Rs 555.

Despite ITC's December quarter earnings falling below expectations, the company showcased resilience across various business segments, analysts at JM Financial noted. 

The shares of ITC dropped as much as 1.84 per cent to hit an intraday low of Rs 441.70 per share after reporting muted December quarter earnings.

The performance of the cigarettes segment appeared muted year-on-year, with volumes declining by approximately 2 per cent, longer-term data indicates a healthier state of affairs with a four-year compound annual growth rate (CAGR) of around 4 per cent, the brokerage firm said in a note.

Fast moving consumer goods (FMCG) operations remained robust amidst a challenging macroeconomic environment, marked by resilient growth in staples, dairy, beverages, health and personal care (HPC), and stationery segments. 

Notably, the hotels segment emerged as a standout performer during the period, recording significant revenue growth and improved earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins.

However, paperboards and agri segments witnessed severe pressure, contributing to a notable drag on overall profitability, the brokerage firm highlighted. 

Paperboards reported a sharp decline in sales, while agri revenue witnessed a fall due to restrictions imposed on select commodities to ensure food security and control inflation.

Despite near-term challenges, JM Financial remains optimistic about ITC's potential for re-rating, especially with the implementation of a sharper capital allocation strategy. 

Despite short-term headwinds, analysts believe that ITC's diversified portfolio and strategic initiatives position it favorably for sustained long-term growth.

Analysts further said that investors must closely monitor developments within ITC's business segments for potential value creation in the coming quarters.

Meanwhile, Amnish Aggarwal, head of research, Prabhudas Lilladher said, “Demand scenario remains mixed with mass segment under pressure across cigarettes and FMCG.  We expect 4.3/4 per cent cigarette volume growth in the financial year 2025/2026 (FY25/26) in a steady state while FMCG will continue to expand margins by 100 basis points (bps).”

“Although Hotels have a high base, revival of business and foreign tourist flow will cushion the performance in financial year 2025 (FY25). Outlook on Paper remains muted in near term given high input costs of wood and pressure on end product prices due to Chinese dumping,” he added.

Prabhudas Lilladher analysts have recommended 'Accumulate' rating on the stock for target price of Rs 489.