Buy ITC; target of Rs 505: Sharekhan

Sharekhan's research report on ITC

ITC’s Q1FY26 numbers were a mixed bag, with a strong 21% y-o-y net revenue growth driven by healthy cigarette volume growth and 39% y-o-y growth in the agri business, while OPM plunged 547 bps y-o-y to 31.7% and missed estimates of 35.2%. PAT grew by 2% y-o-y. Cigarette business reported 8% y-o-y volume-led revenue growth, FMCG biz revenue grew 5% y-o-y, agri business revenue growth was driven by leaf tobacco and value-added agri products, while PPP business revenue grew by 7% y-o-y on a favorable base. PBIT margin for cigarette/FMCG/agri/PPP businesses fell by 270/180/60/550 bps y-o-y to 71.4%/6.9%/4.5%/7.7%, respectively hit by elevated raw material prices.

Outlook

Stock continues to trade at discounted valuations of 24x and 21x its FY26E and FY27E EPS, respectively. We maintain a Buy with a revised PT of Rs. 505.

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