Analysts remain positive on ITC post in line Q1 cigarette earnings, better FMCG biz

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26 Aug, 2025 12:21

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ITC shares gained more than 2 percent in early trade Friday but wiped out some gains as the day progressed. Majority of analysts retain their positive stance on the stock, especially after cigarettes' earnings matched expectations and FMCG business surprised the Street in Q1.

Quantitatively, ITC posted an in-line set of numbers across parameters – cigarette gross revenues grew by 6.6 percent year-on-year to Rs 8,770 crore and overall profit increased 7 percent to Rs 2,560 crore. EBITDA (earnings before interest, tax, depreciation and amortisation) at Rs 3,750 crore was also in line.

Qualitatively, net price / mix were also better – with cigarette EBIT growing 9 percent YoY to Rs 3,270 crore (around 5 percent ahead of estimates), Citi said, adding other FMCG revenue growth positively surprised too, up 9 percent YoY (beating estimates around 7 percent), partly attributed to lower exposure to the CSD channel. The offset was weaker profitability in the agri business due to lower revenues / exports.

While maintaining a buy call with a target price of Rs 325, Citi feels the valuation discount is compelling versus peer group.

"We see a continued near term overhang on the stock given the recent tax hikes which should impact volumes over Q2, but that is factored into the recent correction in our view," it said.

Macquarie said cigarette volume growth came in at 2 percent YoY versus the consensus estimate of a decline of 1–2 percent, which it believes a great outcome given that GST destocking impacted numbers.

With maintaining an outperform rating and target price of Rs 340, Macquarie said, "We are building in 0/1 percent cigarette volume growth for FY18/19. We believe Q2FY18 cigarette volume trends will be critical for the rest of the year."

Bank of America Merrill Lynch expects a gradual revival in volumes in cigarettes as the trade channel normalises and price increases are adapted.

Also, blended price changes taken by ITC absorb higher taxes and should not materially upset FY18 volume trajectory in cigarettes, according to the research house.

ITC's share price has declined nearly 15 percent after the announcement of GST rate revisions on July 17. "This seems unreasonable to us and offers a particularly attractive opportunity to buy, in our view. We reiterate buy rating," BofAML said but it slashed target price to Rs 375 from Rs 390 earlier.

Nomura also maintained its buy rating on ITC as it believes risk-reward remains favourable and all negatives are factored in, but reduced target price to Rs 356 from Rs 389 earlier following cut in revenue/EBITDA/PAT estimates by 3/4.5/4.4 percent, respectively.

Post the results, the research house changed its earnings estimates to account for the GST rate changes, the price increase and the resultant softness in volumes.

The near-term setback of increased taxation under GST notwithstanding, Nomura believes long-term growth prospects remain intact. Cigarette business now faces uniform taxation which would also be changing infrequently under the new GST regimen, which is a significant positive, it feels.

Moreover, the FMCG business (foods in particular) continues to go from strength to strength, with strong growth which is likely to improve further on the back of economic revival, according to the research house.

CLSA, which had sell rating on the stock before earnings, upgraded that to underperform with a target price of Rs 285, especially after recent sharp correction.

The research house sees limited triggers for ITC until clarity emerges on the volume trend post price hikes or perhaps a modest tax hike next year.

The global investment bank believes that the company can deliver 5 percent cigarette volume growth in FY19-20. Moreover, the steep pricing taken in FY18 will lead to slower volume growth.

Goldman Sachs has neutral rating on the stock.

"We believe that ITC can deliver around 5 percent cigarette volume growth in FY19-20 as they capture market share from the informal markets. However, we believe the steep pricing taken in FY18 will lead to slower volume growth and higher down-trading. As a result of weaker mix assumptions we lower FY18-20EPS by 3-4 percent and lower 12-month target price to Rs 315 (from Rs 321)," it explained.

At 11:56 hours IST, the stock price was quoting at Rs 289.30, up Rs 0.65, or 0.23 percent on the BSE.

Posted by Sunil Shankar Matkar