ITC delivered a steady performance in the December quarter, with its FMCG business leading the growth momentum while the core cigarette segment continued to post healthy volume-led gains. However, brokerages remain cautious on the stock amid the recent sharp hike in cigarette duties, with ITC's pricing strategy emerging as the key monitorable in the coming quarters.
Here's What Brokerages Have To Say:
Jefferies
Jefferies maintained a Hold rating with a target price of Rs 400. The brokerage highlighted strong cigarette volume growth of around 7% and robust FMCG performance. However, EBIT margins in cigarettes were hit by high-cost tobacco inventory. Jefferies noted that the recent tax hike makes ITC's pricing response critical, with a staggered price hike not ruled out as the company looks to balance volumes and profitability.
Morgan Stanley
Morgan Stanley maintained an Equal-weight rating with a target price of Rs 366. The brokerage termed Q3 an overall beat, with cigarette and FMCG businesses showing sequential improvement in revenue and EBIT growth. FMCG margins expanded sharply, while cigarette revenue benefited from strong volumes. However, MS also flagged pricing and margin risks following the duty hike.
Citi
Citi reiterated a Sell rating with a target price of Rs 320. While acknowledging a strong Q3 performance, Citi remains concerned about regulatory overhang and believes the extent of price hikes required — potentially over 30% — could pressure volumes and margins in the near term. Citi also sees a positive read-through for peers like Britannia and Nestle India due to GST-led demand recovery.
Key Monitorables Going Forward
Going ahead, analysts believe ITC's pricing strategy will be crucial in determining the stock's trajectory.
- Extent and timing of cigarette price hikes post duty increase
- Ability to manage portfolio mix across price points to protect volumes
- Margin recovery once high-cost tobacco inventory is fully consumed
- Sustained double-digit growth and margin expansion in the FMCG segment.
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