ITC Non-Cigarette EBIT Growth Seen At 35-40% For Next 10 Years, Says Macquaire

ITC Ltd.'s non-cigarette EBIT may grow by 35-40% over the next decade from the current 20% due to strong growth in the FMCG and hotel portfolios, according to Macquaire. This growth could also compensate for the near-term industry pressures in the paper segment, the brokerage said.

The company, despite the global shift from cigarettes to smokeless products, is also well-positioned for growth in cigarette sales due to its lower penetration in India's total tobacco consumption and focus on product innovations, Macquaire said. This, coupled with ITC's strong brand loyalty and effective margin management, supports a positive outlook for cigarette sales, the brokerage said.

Macquarie initiates an 'outperform' rating on ITC, citing portfolio premiumisation, cost controls in FMCG, a favourable outlook for the hotel industry, and steady cigarette EBIT growth.

Macquarie expects earnings per share to grow at a compound annual growth rate of 11% over fiscal 2025–2027, driven increasingly by non-cigarette segments, which reduces risks from cigarette tax hikes. The focus on demerging segments, such as the planned demerger of hotels by December 2024, is seen as a positive development that is not fully reflected in the current share price.

• Rates 'outperform' with a target price of Rs 535 apiece, implying an upside of 13%.

• See the above peer EBIT growth for the cigarette segment.

• EBIT growth of 35–40% over the next 10 years versus 20% currently

• Pickup in the cigarette segment will not impact diversification in the non-cigarette segment.

• Tailwinds across FMCG and hotels to offset weakness in paper

• Strong brand affinity and multiple margin levers to manage leaf tobacco inflation

• 11% EPS CAGR over FY25–27E, driven by the non-cigarette segment

• Demerging segments are gaining scale, as seen in hotels.

• Valuation of 45x for FMCG-led business and 20x for cigarette business