ITC Q4 Review: Steady Cigarettes Growth Offset By Weak FMCG, Paper Margins, Say Analysts

ITC Ltd.’s fourth quarter results received a mixed response from Jefferies, Nomura, and Morgan Stanley, who acknowledged steady cigarette volumes but highlighted pressure on margins and weak performance in FMCG and paperboards.

While near-term earnings may remain subdued due to inflation and cautious pricing, stable cigarette volumes and agri strength offer a buffer. Brokerages suggest a mixed view: cautious in the short term, but structurally positive over the medium to long term.

Jefferies maintained a 'buy' rating, cutting its target price to Rs 535 from Rs 550, citing reasonable valuations despite short-term headwinds. Nomura downgraded the stock to 'hold' with a target of Rs 475, citing delays in margin recovery and limited price actions in cigarettes.

Morgan Stanley stayed 'overweight' with a target price of Rs 500, calling the results an overall beat driven by strong topline growth across segments except paper.

Cigarette volume growth of around 5% year-on-year was broadly in line with expectations. Jefferies and Morgan Stanley pointed to strong volume trends amid inflation and limited price hikes, with EBIT growth of about 4% year-on-year. Margins, however, declined due to rising leaf tobacco costs. Nomura flagged concerns about ITC’s reluctance to raise prices, which may cap profit growth going forward.

The FMCG segment remained soft, growing under 4% year-on-year — the slowest in 12 quarters. Inflation in key inputs like edible oil, wheat, cocoa, and packaging led to a sharp Ebitda margin decline of about 270 basis points year-on-year.

Jefferies reported a 28% year-on-year drop in EBIT. Competitive pressures from local brands also impacted volumes in notebooks, biscuits, noodles, and soaps. Despite this, premium products and alternate channels showed resilience.

Paperboards continued to underperform due to weak domestic demand and higher raw material costs. EBIT margin declined nearly 500 basis points year-on-year — the lowest in nine years.

All brokerages noted management’s cost-control efforts and push for exports to offset the weakness. Meanwhile, the agri business outperformed with EBIT growth of 26% year-on-year, supported by rice exports and better leaf tobacco realisation. Revenue rose 18% year-on-year, providing some balance to the overall portfolio.