1 hr ago
ITC Stock Faces Cigarette Pressure, But Brokerage Sees 68% Upside
ITC sells cigarettes and also operates businesses such as packaged goods, paperboards and technology services.
Its stock price has fallen significantly over the past year.
Cigarette prices have gone up, which may cause people to buy fewer cigarettes.
However, the brokerage believes higher prices could make up for much of the lost sales volume.
It expects cigarette profits to improve as the price increases take effect.
The brokerage lowered its expectations for ITC’s FY27 results but slightly raised its FY28 expectations.
Other ITC businesses, including FMCG, paperboards and technology, could also help the company grow.
Based on these expectations, 360 ONE Capital Research kept its BUY recommendation and ₹440 target price.
360 ONE Capital Research retained its BUY rating and ₹440 target for ITC, implying about 68% upside from ₹262.20.
ITC shares have fallen 36% over the past year and are near their 52-week low of ₹256.
The brokerage expects cigarette price increases to partly offset volume declines and improve realisations and profitability.
360 ONE cut its FY27 revenue, EBITDA and PAT estimates by 3%, 6% and 4%, respectively, while slightly raising FY28 estimates.
FMCG, paperboards, packaging, agriculture and technology businesses are expected to support ITC’s longer-term growth.
- Who
- ITC and 360 ONE Capital Research.
- What
- 360 ONE maintained a BUY rating and ₹440 target price for ITC despite expected cigarette-volume pressure.
- Where
- The stock is traded on the Bombay Stock Exchange, and the businesses discussed operate across ITC’s segments.
- When
- The assessment covers FY27 and FY28 estimates; the article does not provide a publication date.
- Why
- The brokerage expects cigarette price increases, improving realisations and growth in non-tobacco businesses to support future profitability.
Risks and pressures
Brokerage bullish case
Cigarette volumes
Risks and pressures
Recent tax and price increases could cause sharper cigarette-volume declines; 360 ONE raised its FY27 volume-degrowth assumption to 4%.
Brokerage bullish case
The brokerage believes pricing has more weight than volumes in current industry conditions and that higher realisations can offset much of the volume decline.
Near-term earnings
Risks and pressures
360 ONE expects the upcoming quarter’s consolidated revenue, EBITDA and PAT to decline year-on-year, and it cut FY27 estimates.
Brokerage bullish case
The brokerage expects stronger FY28 earnings, improving cigarette EBIT margins and benefits from lower-cost leaf tobacco inventory.
Non-tobacco businesses
Risks and pressures
Higher fuel and crude prices could pressure FMCG margins, while ITC has not fully passed inflationary costs to consumers.
Brokerage bullish case
Healthy FMCG demand, supply-chain disruptions affecting smaller competitors, strong paperboard prices and technology expansion could support growth.
Key facts
- Brokerage view
- BUY rating maintained by 360 ONE Capital Research.
- Target price
- ₹440 per share, unchanged.
- Reference price
- ₹262.20 previous close on BSE; the article also cites a current price of ₹266.
- Implied upside
- Approximately 68% from the previous close.
- One-year performance
- ITC stock has declined 36% over the past year.
- FY27 volume assumption
- Cigarette volume decline assumption increased from 2.5% to 4%.
- Expected upcoming-quarter performance
- Consolidated revenue is expected to fall 3.4% year-on-year, EBITDA 10.3% and PAT 10.9%.
- Technology transaction
- ITC Infotech plans to acquire a 22.1% promoter stake in Happiest Minds for ₹13.3 billion, followed by a 25:81 share-swap merger.
Quotes
360 ONE Capital Research
Brokerage research firm covering ITC
“The stock has been range-bound in the last 2 months, driven by uncertainties related to the impact of the recent tax hikes on the overall cigarette volumes. However, we think, in the current industry dynamics, the pricing lever has more weight than the volumes lever, which should offset the decline in volumes that should follow, as the company has been raising pricing in well-known brands consistently in a staggered and phased manner,”
livemint.com
“We have increased our volume degrowth assumption from -2.5% to -4% for FY27, driven by sharp price hikes done recently, resulting in a Revenue/EBITDA/PAT cut of -3%/-6%/-4%, while increasing our FY28 estimates a tad,”
livemint.com
Sources
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