ITC shares are a ‘buy’ for 90% analysts on the Street despite margin pressures

As many as 34 out of the 39 analysts who track ITC Ltd. — the cigarettes-to-hotels-to-FMCG conglomerate — have ‘Buy’ recommendations on the stock post its September quarter earnings. In fact, one expect the stock to even cross the ₹600 mark.

The other two analysts have a ‘Sell’ rating on the stock, while three recommend a ‘Hold’ rating.

Global brokerage firm Citi has maintained a ‘Buy’ rating on ITC, with a price target of ₹560 per share. This implies a potential upside of nearly 20% from Thursday’s closing levels.

ITC delivered mixed results in the second quarter, with headline revenue surpassing expectations, largely driven by strong agri-business performance. However, profitability was impacted across multiple segments.

Cigarette revenue increased 7% year-on-year (net of excise), which is in-line with Citi’s projections. Volume growth is estimated at 3%, with an additional 4% growth from pricing and mix improvements.

Despite this, the segment profitability was somewhat softer in this quarter. EBIT grew by 5%, but EBIT margins declined by 140 basis points year-on-year (and 190 basis points quarter-on-quarter) due to inflation in leaf tobacco prices and heightened competitive pressures.

Nomura has a ‘Buy’ rating on ITC, with a price target of ₹555 per share.

The foreign brokerage said that ITC delivered good sales performance in Q2 of FY25, though margins were under pressure across segments.

Cigarette volumes grew 3% year-on-year, surpassing the estimate of 2.5%, but margins contracted by 145 basis points year-on-year.

FMCG growth of 5.4% was in line with expectations, though margins declined by 37 basis points year-on-year.

The hotels segment remained strong, paper sales improved, but operating profit margins faced further pressure. The agri-business delivered a positive surprise.

Morgan Stanley maintains an ‘Overweight’ rating on ITC, with a price target of ₹554 per share.

The key positives in Q2 were the growth in net cigarette revenues, strong momentum in the hotel business, and a rebound in the agri segment.

However, challenges emerged from sluggish home consumption, rising inflation in food inputs and tobacco leaf, and overall weakness in the paper segment.

Emkay has maintained an ‘Add’ recommendation on ITC given its strong competitive positioning, but near-term margin stress demands enhanced execution.

The brokerage said that margin pressure is likely to remain across cigarettes, other FMCG, and paper segments.

Emkay has a price target of ₹520 on the counter.

ITC shares ended 2.01% lower on Thursday and are flat so far in 2024.