Major investment banks and brokerages have either maintained or trimmed their target prices for ITC Ltd. after the company announced its September quarter results. While valuations for the FMCG major appear attractive following a recent correction, analysts anticipate continued volatility in the cigarette segment's earnings in the near term, largely due to recent sharp tax increases.
Brokerage Outlooks and Price Targets on ITC
Among 16 brokerages that have issued updates, 360 One Capital Markets holds the highest target price at Rs 440, while Axis Capital has set the lowest at Rs 280. Several prominent firms have weighed in:
- Jefferies: Trimmed FY27-29e earnings estimates by 2-3 percent, maintaining a 'Buy' rating with a target price of Rs 350. They noted a decline in cigarette volumes and EBIT in Q2, attributing it to tax hikes and persistent tax arbitrage on illicit cigarettes.
- Morgan Stanley: Maintained an 'Equal-weight' rating, revising its target price down to Rs 312 from Rs 340.
- UBS: Retained its 'Buy' rating but cut its target price to Rs 345 from Rs 350.
- JPMorgan: Maintained a 'Neutral' rating and kept its target price at Rs 310.
- Macquarie: Also retained a 'Neutral' rating with an unchanged target price of Rs 300.
- CLSA: Maintained an 'Accumulate' rating and slightly raised its target price to Rs 390 from Rs 388.
- Nomura: Suggested a 'Buy' rating with an unchanged target of Rs 340.
- Investec: Recommended 'Hold' while trimming its target to Rs 294 from Rs 308.
Q2 Performance and Future Projections for ITC
Emkay Global reported that ITC's Q2 results were slightly above estimates, with the cigarette business performing largely as expected. Revenue grew 2 percent year-on-year, driven by strong growth in the FMCG Others and Agri segments. Cigarette volumes saw a high single-digit decline year-on-year, in line with expectations, though the 27 percent fall in EBIT was marginally better than anticipated.
Brokerages like Emkay Global and Nuvama Institutional Equities expect a gradual easing of cigarette volume decline and EBIT fall in the second half of the fiscal year, as demand normalizes and the full impact of price hikes is absorbed. Nuvama, in particular, upgraded its rating to 'BUY' from 'HOLD', citing attractive valuations at 19 times FY27 EPS and a 5-6 percent dividend yield, coupled with an improving outlook.
However, MOFSL (Motilal Oswal Financial Services) believes ITC is still in a transitory phase, with the full tax hike yet to be passed on to consumers. They project continued volatility in the cigarette's revenue and EBIT performance in the near term. While the FMCG business shows robust margin improvement, MOFSL suggests that earnings pressure from cigarettes could offset other positive catalysts, recommending a target of Rs 285.
"The operating environment remains uncertain amid geopolitical tensions, elevated crude/input costs, and inflationary pressures. Indian demand, however, remained resilient across rural/urban, though uneven monsoons and El Niño pose risks to agri output and inflation." - Jefferies
Overall, the consensus indicates that while ITC's non-cigarette segments are expected to show healthy growth, the recovery in cigarette volume growth and uncertainty surrounding future price hikes and union budget announcements will remain key factors influencing the ITC share price.