ITC Q2 Results Review - Margins Fail To Impress; Maintain 'Accumulate': Dolat Capital

Dolat Capital Report

ITC Ltd.'s Q2 FY24 results came below our anticipation. Our analysis suggest that the cigarette business reported ~6% volume growth– below our estimate.

Fast moving consumer good business reported 8.4% revenue growth with 170 basis points improvement in Ebit margin. Revenue performance was better compared to the industry.

Despite high base, 6% volume growth in cigarette business is encouraging. The business reported 9% sales compound annual growth rate and 5% volume CAGR over last four-years. We expect volume and market share gain in the business in the near term.

We have downward revised our FY24/25E earnings per share estimates by 3.3/2.2% at Rs 16.7/18.4 and introduced FY26E EPS at Rs 20.1. Twin impact of cigarette business market share re-gain from illicit trades and price increases during the quarter would help the business to grow.

We have arrived at a target price of Rs 474 (SOTP valuation). However, due to recent run up in the stock price we have maintained 'Accumulate' rating. 'Buy' on dips.

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