ITC up 4% on MS upgrade: Will cigarette revenue improve?

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26 Aug, 2025 12:21

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Shares of ITC surged 4 percent intraday on Thursday. Morgan Stanley has upgraded the stock to overweight from equalweight, making it the top pick within its staples coverage. The brokerage has set a target price of Rs 400 per share stating cigarette volume elasticity over the next two quarters, pricing action and tax policy in the upcoming Union Budget to be key catalyst for the FMCG stock.

"We project 7 percent EBIT growth in F16, rising to 15 percent in F18 versus the average over the last five years of 18 percent.  It is due to compelling risk-reward, relative investor positioning, attractive valuation, solid long-term growth potential, strong business model and benign earnings expectations," Morgan Stanley says in a report.

Even with continuing sharp tax increases, rising cigarette volume elasticity and illicit cigarette trade, the brokerage expects ITC to report mid- to high-single-digit EBIT growth in the cigarette business. It firmly believes ITC may have sufficient pricing power to offset cigarette volume declines and register positive earnings growth.

Cigarettes revenue (which contributes 48 percent to total revenue) slipped 1.2 percent year-on-year to Rs 4,149.6 crore in April-June quarter but its EBIT (earnings before interest and tax) performance was good, up 2.2 percent to Rs 2,781 crore and margin spiked by 220 basis points to 67 percent.

The company had said that performance during the quarter was subdued reflecting the unprecedented pressure on legal cigarette industry volumes, sluggish demand conditions prevailing in the FMCG industry and lack of trading opportunities in wheat and soya.

Its Q1 profit grew by 3.6 percent year-on-year to Rs 2,265 crore while revenue dropped 7.1 percent to Rs 8,588 crore compared to same quarter last fiscal.'At 12:44 hrs ITC was quoting at Rs 330.00, up Rs 13.35, or 4.22 percent on the BSE.Posted by Nasrin SultanaFollow @NasrinzStory