- ITC shares rose 4.1% after an 81% rise in cigarette revenue in Q1 FY24
- Jefferies upgraded ITC to Buy with a target price of Rs 350 on volume strength
- Consolidated net profit fell 27.1% and revenue declined 14.4% year on year
ITC Ltd. shares rose as much as 4.1% to Rs 292.55 after its cigarette business reported an 81% year-on-year increase in revenue and Jefferies upgraded the stock to 'Buy', citing resilience in cigarette volumes.
Cigarette revenue increased to Rs 15,383 crore in the June quarter. Jefferies said it was positively surprised by volume resilience and upgraded ITC to 'Buy' from 'Hold' with a target price of Rs 350.
The performance of the cigarette business remained in focus even as ITC's consolidated profit, revenue and operating margin declined year on year. Brokerages differed on the outlook for the cigarette segment, with Goldman Sachs flagging a decline in cigarette Ebit and HSBC pointing to a volume correction and weaker realisations and mix.
ITC's consolidated net profit fell 27.1% year on year to Rs 3,579 crore from Rs 4,911 crore. Net revenue declined 14.4% to Rs 16,908 crore from Rs 19,761 crore.
Earnings before interest, tax, depreciation and amortisation fell 27.9% to Rs 4,514 crore from Rs 6,261 crore. Ebitda margin contracted by 498.3 basis points to 26.7% from 31.7%.
Total FMCG business revenue rose 53% year on year to Rs 21,866 crore, while agri-business revenue declined 17% to Rs 8,082 crore.
Jefferies Upgrades On Cigarette Volume Resilience
Jefferies upgraded ITC to 'Buy' from 'Hold' and set a target price of Rs 350 after the June-quarter results.
The brokerage said it was positively surprised by the resilience in cigarette volumes. It said the earnings miss was largely driven by gradual price increases and a series of interventions.
"Encouraging volume trends" could give ITC's management confidence to take further price increases, according to Jefferies.
Goldman Sachs maintained its 'Neutral' rating and cut its target price to Rs 290 from Rs 320. The brokerage said the first-quarter results missed estimates because of a larger-than-expected decline in cigarette Ebit.
Goldman Sachs also said paper margins expanded from a low base, while the FMCG business had a strong quarter.
Brokerages Assess Cigarette Business Outlook
JPMorgan maintained its 'Neutral' rating and cut its target price to Rs 310 from Rs 325. The brokerage said a reset of ITC's cigarette portfolio was underway.
It said the FMCG business recorded healthy growth excluding staples, while paperboard and packaging improved. Disruptions in the agribusiness continued, according to JPMorgan.
Macquarie retained its 'Neutral' rating and lowered its target price to Rs 300 from Rs 330. The brokerage said tax increases were still being passed through, making the first quarter an unreliable indicator of the FY27 run rate.
Management remains focused on stemming migration to illicit cigarettes, according to Macquarie.
HSBC maintained its 'Hold' rating and raised its target price to Rs 320 from Rs 310. The brokerage said cigarette Ebit declined because of a volume correction and weaker realisations and mix. Further tax increases remain a key uncertainty, it said.
Among the analysts tracked by Bloomberg, 18 have a 'Buy' rating on ITC, while 15 recommend 'Hold' and four have a 'Sell' rating.
The consensus target price stands at Rs 329.88, implying a potential upside of 13.2% from the last regular trade.
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