Stock in Action - ITC 25 October 2024

Highlights

1. ITC's share price has increased over 2.67% year to date in 2024 including today’s 1.88% gain.

2. ITC's financial performance has increased over the past year with operating profit Increasing from ₹25,915 crores in March 2023 to ₹27,302 crores till TTM 2024.

3. ITC's quarterly earnings report highlighted a decline in net profit in the September quarters.

4. ICICI Securities has set a target price of ₹500. Currently stock is treading at ₹480 per share.

5. Emkay Global Financial has advised investors to add ITC shares and set a target price of ₹520.

6. ITC stock has underperformed the market by delivering just 11% returns in the last year.

7. ITC is currently trading at ₹480.55 showing a 1.88% increase as of 1:52 pm on NSE.

8. ITC has a strong Return on Equity (ROE) of 28.4% and a Return on Capital Employed (ROCE) of 37.5%.

9. The company reported a consolidated profit of ₹5,054.4 crore for the quarter, marking a 1.8% increase from ₹4,964.5 crore in the same period last year (Q2FY24).

10. As per the September quarter filings the company has a 40.53% promoter holding and 44.59% DII holding.

Why is ITC Share in News?

ITC's share price rose by 3.64% to ₹489.05 on 25 October 2024 making it the top gainer on both BSE and NSE. This boost came after ITC posted strong results for the July-September quarter (Q2FY25).

In this period, ITC’s total profit rose slightly by 1.8% year on year to ₹5,054.4 crore from ₹4,964.5 crore a year ago. Revenue from operations (excluding excise duty) increased by 16.7% to ₹20,735.9 crore. The company’s operating profit (EBITDA) grew 4.8% year on year to ₹6,761.8 crore. However, ITC’s profit margins decreased dropping by 370 basis points from 36.3% last year to 32.6% in Q2FY25.

ITC’s main cigarette business saw revenue increase by 7.3% with profits growing by 5.1% and cigarette volumes rose by 3%. The hotel business also performed well with revenue up by 12.1% achieving a strong two year growth rate. Profit in this segment grew by 20.2% yoy..

Agri Business was a standout, with revenue up by 47% largely due to strong demand for leaf tobacco and value added agricultural products leading to a 27.5% rise in profit.

However, the Paperboards, Paper & Packaging segment faced challenges due to cheaper Chinese imports, low local demand and rising wood costs limiting its revenue growth to 2.1% year on year. Yet, strong export growth helped this segment recover with a 7% improvement from the previous quarter.

Analyst View on ITC

ICICI Securities

Analysts from ICICI Securities noted that ITC's Q2FY25 results showed strong revenue growth across its segments. Cigarette volume growth stabilized at around 3% year on year, despite necessary price increases to cope with rising costs. They expect that the unchanged tax on cigarettes will help ITC gain market share against the illicit market which makes up about 25% of the total.

FMCG segment also performed well growing 5% annually though margins were impacted by rising commodity prices. Overall, they believe the formal cigarette market is positioned for further growth, provided conditions remain stable. However, profit margins are under pressure due to increased costs and a larger share of lower-margin agricultural business.

As a result, ICICI Securities has lowered its earnings estimates by 7% for FY25 and FY26, forecasting revenue, EBITDA and PAT growth rates of 12%, 10% and 7% respectively over the next few years. They maintained an add rating with a revised target price of ₹500 (down from ₹530).

Nuvama Institutional Equities

Nuvama Institutional Equities reported that ITC's revenue increased by 16.8% year on year, exceeding expectations, largely due to the Agri business. While EBITDA and PAT met forecasts, cigarette revenue rose 7.3%, and volumes increased by 3.3%, which was better than their predicted 2.5%. Due to strong performance in leaf tobacco exports, they have raised their EPS estimates for FY25, FY26, and FY27 by 2%, 2.7%, and 3.2%, respectively, setting a new target price of ₹585 (up from ₹580). They maintained a "Buy" rating.

Emkay

Emkay analysts kept an "Add" rating on ITC due to its strong market position, but they noted that short-term margin pressures need to be addressed. They expect margin challenges to continue in the cigarette, FMCG, and paper segments, so they have kept the target price unchanged at ₹520.

Nomura

Nomura, a Japanese brokerage, reaffirmed its "Buy" rating on ITC, setting a target price of ₹555. They highlighted strong sales performance in Q2, though margins across all segments faced pressure during the quarter.