ITC: Should you invest in the stock after Q1 earnings? Here's what brokerages say

Following ITC's Q1FY24 results, brokerage firms have retained their positive outlook on the company. Motilal Oswal maintained its 'buy' rating on the stock with a target price of ₹535 per share, based on a 28x FY25E EPS valuation.

"At a time when uncertainty looms over the industry, led by high inflation, unpredictable monsoons, and continued weak rural sales, ITC’s recovery in cigarette volumes offer decent earnings visibility at reasonable valuations and an attractive dividend yield," the brokerage said. 

Likewise, JM Financial upheld its 'buy' recommendation with a target price of ₹555 per share. Similarly, Kotak Institutional Equities continued  its 'buy' call on the stock and revised its SoTP-based target price higher to ₹467 apiece from ₹450 earlier.

ITC on Monday posted a 18% YoY rise in its standalone net profit to ₹4,903 crore. ITC's revenue from operations declined by 7% YoY to ₹16,843 crore, primarily attributed to weak performance in the Paperboards, Paper & Packaging, and Agri business segments.

ITC's FMCG businesses continue to deliver robust performance, with segment revenue growing 16.1% YoY to ₹5,166 crore, led by strong growth in staples, biscuits, noodles, beverages, dairy, agarbatti, and premium soaps.

The company said FMCG businesses witnessed robust growth in both urban and rural markets, driven by superior consumer insights, purposeful innovation, portfolio premiumisation, enhanced distribution footprint, excellence in last-mile execution, and leveraging digital initiatives.

The revenue from the cigarette business improved by 13% YoY to ₹7,465 crore in the April-June quarter of this fiscal and the segment PBIT increased 11% YoY to ₹4,656 crore.

The cigarette business, according to ITC, continues to counter illicit trade and reinforce market standing by fortifying the product portfolio through innovation, democratising premiumisation across segments, and enhancing product availability backed by superior on-ground execution.

The hotel business recorded its best-ever quarterly revenue of ₹600 crore, a surge of 8% YoY. Segment EBITDA margin expanded by 140 basis points YoY to 33.9%, driven mainly by higher RevPAR, curated packages, finest F&B offerings, and strategic cost management initiatives.

"Strong growth was witnessed in ARRs across properties, though occupancy moderated on a high base due to relatively fewer wedding dates during the quarter and pre-planned renovations. The business continued to focus on its strategy of offering a host of curated propositions across accommodation, dining, and banqueting to augment revenues across properties," ITC said in a regulatory filing.

On the flip side, ITC's Paperboards, Paper and Packaging segment reflects the impact of subdued demand (domestic and exports), a sharp reduction in global pulp prices, and a high base effect. The segment revenue declined 6% YoY to ₹2,121 crore, and the segment PBIT declined 23% YoY to ₹472 crore.

"Subdued demand in the EU and China, low-priced Chinese supplies in global markets, a steep decline in global pulp prices on a high base, and relatively muted customer offtake in domestic markets (destocking) weighed on performance during the quarter, the company said.

Key inputs, including wood and coal, witnessed a sharp surge in prices, exerting pressure on margins, it added.

Similarly, the company's agribusiness revenue declined 24% YoY to ₹5,705 crore. The company said restrictions imposed on wheat and rice exports by the government in the backdrop of inflationary headwinds and food security concerns weighed on segment revenue during the quarter.

Meanwhile, ITC's board, on Monday, approved the demerger of ITC Hotels Ltd. from the company.

"Under the scheme of demerger, ITC Hotels will issue equity shares directly to the shareholders of ITC in a manner that about 60% of the stake is held directly by ITC shareholders, proportionate to their shareholding in ITC, and the remaining about 40% stake to continue with ITC, the company said.

"For every ten ordinary shares of the face and paid-up value of Re 1 each held in the demerged company (ITC Ltd), one equity share of the face and paid-up value of Re 1 in the resulting company (ITC Hotels)" will be issued, the company added.

36 analysts polled by MintGenie on average have a 'strong buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.