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Strong Q2 results lift ITC stock amid market challenges

Stocks
2 min Read Oct 25, 2024
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In the wake of a strong earnings report for the quarter ending September 2024, ITC's stock has captured significant attention among investors. The company's solid performance in crucial sectors, particularly in cigarette sales and its hotel division, has sparked renewed interest in share market investment. Analysts from the industry have expressed optimism regarding ITC's resilience amid challenges like weak domestic consumption and inflationary pressures.

Key financial highlights

ITC Ltd reported a net profit of ₹5,078.3 crore for Q2 FY25, marking a 3.1% increase compared to the same period last year. The total revenue for the July-September quarter reached ₹19,327.8 crore, reflecting a robust growth of 16.8% year on year. Key figures include:

  • Cigarette volume: Grew by 3% YoY, surpassing expectations of 2.5%.

  • FMCG segment: Reported a growth of 5.4% but experienced a margin contraction of 37 basis points.

  • Hotel business: Demonstrated strong performance despite overall market challenges.

While the agricultural segment surprised positively, the paper division faced some headwinds, further impacting operating profit margins.

Brokerage insights

Brokerages have taken a favourable stance on ITC, with Nomura issuing a 'buy' rating and setting a target price of ₹555 per share. They highlighted strong sales performance despite margin pressures across segments. Morgan Stanley also rated ITC as 'Overweight', with a target price of ₹554, crediting solid net cigarette revenues and a recovering agricultural sector for the positive outlook.

However, analysts noted concerns about weak home consumption, rising food inflation, and increased tobacco leaf costs. These factors could hinder growth in the coming months. Despite these challenges, the consensus remains that ITC has maintained its leadership in the cigarette market.

Future outlook

ITC's management remains optimistic, citing a resilient Indian economy bolstered by government policy interventions and infrastructure investment. They anticipate that improved agricultural terms and public investment will stimulate consumption demand. The agricultural sector has performed well, thanks in part to favourable crop harvests and strong exports of tobacco leaf and traded commodities.

Key takeaways

  • ITC’s Q2 FY25 earnings exceeded expectations, driven by strong cigarette volumes and hotel business growth.

  • Analysts from the industry remain optimistic about ITC's future, emphasising its market leadership in cigarettes and FMCG.

  • The company's share market investment potential is underscored by its ongoing focus on quality and strategic sourcing through its eChoupal network.