FMCG-to-cigarettes player ITC Ltd.'s shares will be in focus in trade on February 7, after the diversified conglomerate shared its earnings report for the quarter ended December 31, 2024.
ITC reported a 1 percent rise in standalone net profit at Rs 5,638 crore, beating estimates, for the quarter. The firm reported net profit of Rs 5,572 crore in the year-ago period. Revenue from operations rose to Rs Rs 20,350 crore from Rs 18,880.4 crore in the same quarter last year.
Further, ITC will acquire frozen-food player Prasuma over the next 3 years, expanding its footprint in frozen and ready-to-cook foods area. The first tranche of 43.8 percent will be acquired upfront, and the remaining stake will be acquired in tranches by June 2028 based on valuation criteria.
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Cigarettes
Cigarette business' net segment revenue rose 7.8 percent to Rs 8,136.3 crore in the quarter, while the volume growth was 6 percent. International brokerage Morgan Stanley noted that the good growth in cigarettes was a surprise. Overall, the rising volumes led revenue growth, while raw material inflation weighed on margins.
The recent moderation in tobacco prices (Mysore) would have a positive effect from next year. Also, Andhra crop is expected to come at a lower price. Given RM cost easing expected next year, the company is not looking to effect price hikes for passing on the inflation impact, said domestic brokerage Emkay Global.
FMCG - Others
Amid a high concentration of inflation in foods, which contributes to 80 percent of this segment's revenue, the segment saw a 4 percent YoY growth in revenue to Rs 5,418 crore. ITC partially mitigated severe inflationary pressures in prices of edible oil, wheat, maida, potato, cocoa, packaging inputs through focused cost management initiatives, calibrated pricing actions and premiumisation.
Agri, paperboards
Soft demand conditions, surge in wood prices along with low priced Chinese and Indonesian supplies impacted Paperboards, paper and packaging segment performance. On the other hand, the agri revenue 9.7 percent YoY led by leaf tobacco and value-added agri products.
Prasuma acquisition
The acquisition shall help ITC become a full stack player in the frozen food segment and aligns with ITC's strategy to build a future-ready portfolio and capitalise on the growing demand for convenient and high-quality food products in India.
The valuation of the deal implies an EV/sales of ~2.3x (based on FY24 turnover), which in Nuvama Institutional Equities' view is reasonable given the brand’s visibility is good and allowing ITC to strengthen its presence in high growth frozen food market.
Should you buy, sell, or hold?
We remain hopeful of an improved topline, and expect the margin stress to ease from FY26E which is likely to lead to resumption of the double-digit earnings growth trajectory, said Emkay Global. The brokerage maintained its 'add' rating, but trimmed the target price to Rs 490 per share.
Nuvama said, "We stay cautious in near term given ongoing urban slowdown, inflation in key RM and weak profitability in FMCG and paperboard." However, it kept its 'buy' rating intact, with a target price of Rs 571.
Morgan Stanley and JPMorgan reiterated their 'overweight' calls on ITC shares, with a target price of Rs 578 and Rs 505 respectively. The revenue was in-line, but margins were a little soft this quarter.
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