ITC Target Price Cut By JPMorgan Amid Margin Headwinds

JPMorgan has maintained its 'overweight' rating on ITC Ltd. while cutting its target price to Rs 475 from Rs 505, citing margin headwinds and lower earnings forecasts. The brokerage has revised its financial year 2025-2027E EPS downward by 4-6% due to a reduction in EBIT across its cigarettes, other FMCG, and paper segments.

While cigarette taxation remains unchanged, ITC faces pricing pressures from competitors like GPI and PM. Price hikes have been elusive despite resilient volume growth, and the company has had to tactically respond to discounting strategies in certain regions, said the brokerage. Rising leaf tobacco costs have added pressure, but a new crop cycle in second half of financial year 2026 may ease costs and stabilise margins.

FMCG revenue growth slowed to 5% year-on-year in nine months of financial year 2025, in comparison to 10% in fiscal 2024 due to consumption headwinds and pricing pressures in stationery, the brokerage said in its note on Tuesday.

However, early signs of recovery are visible in atta and biscuits, JPMorgan added. Premiumisation and portfolio expansion will drive future growth. Ebitda margins contracted 80bps year-on-year to 10.2% due to raw material inflation, but are expected to improve by 80-100bps annually over the medium term.

The paper segment returned to revenue growth but faces margin pressures from higher wood costs and lower realisations, according to JPMorgan. The agri business, however, has performed well, with revenue up 27% year-on-year and EBIT up 16% year-on-year, supported by value-added products. ITC’s ongoing nicotine export trials position it favourably in the global Nicotine & Derivatives market.

Shares of ITC rose as much as 1.13% to Rs 414.40 apiece, the highest level since March 28. It pared gains to trade 0.22% higher at Rs 410.65 apiece, as of 11:10 a.m. This compares to a 1.26% decline in the NSE Nifty 50. The shares have extended their advance for the third consecutive session.

It has risen 1.73% in the last 12 months and fallen 10.33% year-to-date. Total traded volume so far in the day stood at 1.9 times its 30-day average. The relative strength index was at 51.

Out of 40 analysts tracking the company, 35 maintain a 'buy' rating, three recommend a 'hold' and two suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 24%.