ITC shares rise nearly 2% after Q2 earnings; here is what global investment firms say

Shares of ITC, the country's largest cigarette maker, rose as much as 1.83% to hit an intraday high of ₹426.40 apiece on the National Stock Exchange (NSE) in an otherwise weak market on Friday, October 31. The stock was in focus after the conglomerate reported September quarter earnings post-market hours on Thursday. On the BSE, ITC shares rose 1.86% to hit an intraday high of ₹426.50.

The company's revenue from operations after deducting excise duty declined 3.4% annually to ₹18,021 crore in the July-September period from ₹18,649 crore a year earlier.

ITC's revenue from cigarette business rose 7% annually to ₹8,723 crore, and its revenue from other FMCG business gained 7% to ₹5,964 crore. Its total revenue from FMCG business advanced 6.77% to ₹14,687 crore.

Differentiated variants and the premium cigarette segment registered strong growth during the quarter, leveraging mainstream trademarks and innovation, ITC said in a press release.

The FMCG business posted an 8% year-on-year (YoY) increase in revenue excluding notebooks, despite facing operational challenges from excessive rains and the transition to the new GST regime.

Growth was led by staples, dairy, premium personal wash products and agarbattis even as the notebooks category continued to be impacted by low-priced paper imports and aggressive local competition, ITC said in an earnings release.

Segment EBITDA margin improved 50 basis points sequentially to 10%, aided by stabilising commodity prices and focused cost management initiatives. ITC said prices of key inputs such as edible oil, wheat, maida, cocoa and soap remained elevated YoY but showed signs of stability.

During the quarter, ITC expanded its Sunfeast Baked Creations brand with a new range of super-premium cookies and cakes made with globally sourced ingredients. These short shelf-life products are distributed via hyperlocal and customised supply chains and have received strong consumer response on quick commerce platforms, ITC noted.

Here is what global investment firms say on ITC Q2 results:

Jefferies said that cigarette volumes rose about 6% YoY, better than its peers. However, the global investment firm highlighted that EBIT margins in the segment continued to trend lower due to high-cost tobacco and intensified competition. It also flagged muted EBITDA growth of 2%, though management expects a pick-up ahead.

Citi said that ITC’s overall revenue fell 2%, weighed down by the agribusiness, but excluding that segment, revenue grew 8% YoY. EBITDA and PAT rose 2% YoY, with the cigarette business delivering 7% growth, supported by a stable tax environment and improved category growth.

Citi, however, pointed out investor concerns around margin weakness and relative underperformance versus peers but added that ITC’s strategic portfolio expansion and market interventions should help sustain market share.

Nomura said that Q2 numbers were in line with its estimates. It estimated cigarette volumes grew 6% YoY and EBIT at around 4%, while margins contracted by 170 basis points. FMCG revenues rose 6.9%, though operating profit margin slipped 65 bps to 10%.

Nomura expects a recovery in the paperboard segment and noted growth potential in ITC’s foodtech business.

As of 11:31 am, ITC shares traded 1.17% higher at ₹423.65, outperforming the NIFTY50 index, which was down 0.35%. The stock was among the top gainers in the NIFTY50 index.