ITC Q2 Results Review - Margins Fails To Impress; Reduce; Buy On Dips, Says Dolat Capital

Dolat Capital Report

ITC Ltd.'s Q2 FY25 revenue was ahead of our estimate. Our analysis suggests that cigarette business reported ~3% volume growth – in line with our estimate. However, given consolidation of industry volumes on a high base, the business reported 8.7% sales CAGR over last five years. We expect near-term volume and market share gain in this business.

The agri business reported a strong 47% growth driven by leaf tobacco and value-added products contributing significantly to the overall revenue outperformance. In contrast, FMCG business reported 5.3% revenue growth with Ebit margin contracting 40 bps due to inflationary raw material costs and intense competition from local players.

We have maintained our FY25/26E EPS estimates at Rs 17.0/18.9 as Q2 profitability was in line with our estimate. We have also introduced FY27E EPS at Rs 20.8. Maintain ‘Reduce’ rating with a SOTP-based target price of Rs 510. Buy on dips.

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