Why ITC Shares Are Under Pressure

ITC shares dropped over 3 per cent on Monday after India's largest cigarette maker reported a lower-than-expected quarterly profit last week. ITC, which sells four out of every five cigarettes in the country, had announced its March quarter numbers after stock markets had closed on Friday.
  Here are the reasons for the selloff in ITC:
1) Cigarette sales not only account for a major portion of ITC's overall sales, but they are also the profitable business segment for ITC with operating margins in mid-60s. However, cigarette volumes have come under tremendous pressure over the last few quarters because of rising excise duty and consequent increase in cigarette prices.
2) In the March quarter, ITC's cigarette volumes declined by 11-12 per cent. Analysts were expecting a drop of 8 per cent. According to TS Harihar of HRBV Client Solutions, ITC's cigarette volumes declined for the eight consecutive quarter between January and March.
3) Amnish Aggarwal of Prabhudas Liladhar says cigarette volumes are likely to remain under pressure because of fears of further hike in excise duty and other regulatory changes proposed by the government. "Cigarette prices have reached a level, where it's difficult for the company to increase prices further," he added.
4) ITC's FMCG and hotel businesses managed to show growth, but agriculture and paper segments saw a decline year-on-year.
5) Overall, ITC's fourth quarter results were subdued. ITC earned Rs 2,361 crore, while analysts were expecting the company to earn Rs 2,519 crore, as per Thomson Reuters data. Sales came in at Rs 9,188 crore, more or less in line with last year's Rs 9,145 crore.
Brokers' Take:
Most of the brokerage cut their targets on ITC after another muted quarter. CLSA retained its "sell" call on ITC (target Rs 310); it also cut earnings per share estimate by 2-3 per cent. Barclays maintained its "equal-weight" on ITC, but cut the target price on stock to Rs 330. Weak near-term sentiments will continue to plague ITC, it said.
Domestic brokerage Motilal Oswal maintained its "neutral" call on ITC (target Rs 365), but cut its EPS estimate by 1-2 per cent.
ITC stocks ended 3.75 per cent lower at Rs 316.80 apiece, underperforming the broader Nifty, which ended 1.05 per cent lower on Monday.

ITC shares dropped over 3 per cent on Monday after India's largest cigarette maker reported a lower-than-expected quarterly profit last week. ITC, which sells four out of every five cigarettes in the country, had announced its March quarter numbers after stock markets had closed on Friday.
  Here are the reasons for the selloff in ITC:
1) Cigarette sales not only account for a major portion of ITC's overall sales, but they are also the profitable business segment for ITC with operating margins in mid-60s. However, cigarette volumes have come under tremendous pressure over the last few quarters because of rising excise duty and consequent increase in cigarette prices.
2) In the March quarter, ITC's cigarette volumes declined by 11-12 per cent. Analysts were expecting a drop of 8 per cent. According to TS Harihar of HRBV Client Solutions, ITC's cigarette volumes declined for the eight consecutive quarter between January and March.
3) Amnish Aggarwal of Prabhudas Liladhar says cigarette volumes are likely to remain under pressure because of fears of further hike in excise duty and other regulatory changes proposed by the government. "Cigarette prices have reached a level, where it's difficult for the company to increase prices further," he added.
4) ITC's FMCG and hotel businesses managed to show growth, but agriculture and paper segments saw a decline year-on-year.
5) Overall, ITC's fourth quarter results were subdued. ITC earned Rs 2,361 crore, while analysts were expecting the company to earn Rs 2,519 crore, as per Thomson Reuters data. Sales came in at Rs 9,188 crore, more or less in line with last year's Rs 9,145 crore.
Brokers' Take:
Most of the brokerage cut their targets on ITC after another muted quarter. CLSA retained its "sell" call on ITC (target Rs 310); it also cut earnings per share estimate by 2-3 per cent. Barclays maintained its "equal-weight" on ITC, but cut the target price on stock to Rs 330. Weak near-term sentiments will continue to plague ITC, it said.
Domestic brokerage Motilal Oswal maintained its "neutral" call on ITC (target Rs 365), but cut its EPS estimate by 1-2 per cent.
ITC stocks ended 3.75 per cent lower at Rs 316.80 apiece, underperforming the broader Nifty, which ended 1.05 per cent lower on Monday.