ITC Shares Fall Over 2% As Q2 Numbers Fail To Impress D-Street; Should You Invest?

Shares of ITC fell 2.3 per cent to the day’s low of Rs 440 on the NSE despite a better-than-estimated June quarter earnings reported. The Street remained unimpressed as selling pressure in the FMCG stocks weighed, dragging the broader Nifty as well.

ITC share price has gained about 31 per cent in the last one year against an 11 per cent gain in the equity benchmark Sensex. The stock hit its 52-week high of Rs 499.60 on July 24 this year and its 52-week low of Rs 325.35 on December 23 last year on the BSE.

ITC on October 19 reported 6.02 per cent year-on-year growth in consolidated net profit at Rs 4898.07 crore in Q2FY24. On the other hand, consolidated gross sales increased by 3.84 per cent YoY to Rs 19,137.51 crore during the quarter under review.

ITC’s September quarter growth was led by its cigarettes and hotel business segments. Moreover, the company reported strong performance in its FMCG segment with an 8.3 per cent YoY rise in segment revenue in Q2 FY24.

What Should Investors Do?

Most brokerage firms retained their positive views on ITC stock after the company’s impressive show in the cigarette and FMCG segments.

Motilal Oswal maintained its buy call on ITC stock with a target price of Rs 535, implying a 19 per cent upside target and said ITC’s earnings visibility remains better than that of peers.

“At a time when uncertainty looms over the industry, led by high inflation, unpredictable monsoons, and continued weak rural sales, ITC’s recovery in cigarette volumes offers decent earnings visibility at reasonable valuations and attractive dividend yield,” Motilal Oswal said.

Nuvama Wealth Management maintained its buy call on the ITC stock with a target price of Rs 560, implying a 24 per cent upside from the stock’s Thursday’s (October 19) closing of Rs 450.30 on the BSE.

Nuvama pointed out that ITC posted decent growth across most segments. It expects legal cigarette players to gain market share from illegal players (almost one–fourth of the market) given a nominal tax hike in the union budget for FY24, followed by two consecutive years of no-tax hikes.

Being the largest legal player, ITC would be a key beneficiary, Nuvama said.

In the FMCG business, the company would like to see market share gains across most categories. EBITDA margin expansion is on the right trajectory.

“ITC continues to gain in the cigarette market as organised share rises. Other segments have been scaling up with portfolio and network expansion, which augurs well for the company,” said Nuvama.

Nirmal Bang, too, has maintained a buy call on the stock with a target price of Rs 525.

The brokerage firm pointed out that ITC’s cigarette volume growth of about 4 per cent YoY was much better than its estimate of a 2 per cent YoY decline. Cigarette volume thus remained resilient at a four-year average of mid-single digit, much higher than the flattish to declining trends of the past.

Cigarette EBIT growth was healthy at 8 per cent YoY and is expected to be healthy in the subsequent quarters, Nirmal Bang underscored.

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