Buy ITC; target of Rs 486: Deven Choksey

Deven Choksey's research report on ITC

ITC’s Q2FY26 performance came in below our expectations, with revenue declining 8.5% QoQ (-1.6% YoY) to INR 2,10,475 Mn, mainly impacted by seasonal moderation in agri-business revenues and higher intersegment adjustments Revenue: Consolidated net revenue from operations (excl. excise duty) declined 2.4% YoY (-9.3% QoQ) to INR 1,95,016 Mn, led by a steep 30.3% YoY drop in Agri Business, while Cigarettes grew 6.0% YoY and the FMCG–Others segment sustained healthy growth of 8.5% YoY. Margin and Profitability: EBITDA fell 20.4% YoY (-28.1% QoQ) to INR 66,947 Mn, with margins compressing by 772 bps YoY to 34.3%, reflecting higher input costs, subdued volumes, and weak operating leverage. Adjusted PAT came in at INR 51,261 Mn, down 25.1% YoY (-33.7% QoQ), below our expectations due to broadbased margin pressure and lower other income.

Outlook

We value ITC based on SOTP valuation methodology, with Cigarette business at 13.0x FY27E EV/EBITDA, Agri. Business at 8.0x FY27E EV/EBITDA, Paper business at 4.5x FY27E EV/EBITDA, FMCG at 8.0x FY27E EV/Revenue, and its stake in ITC Hotels at INR 12.0 per share (reflecting a 20.0% hold-co discount), implying a target price of INR 486. We reiterate our “BUY” rating on ITC stock, backed by resilient core performance and improving margin outlook.