ITC shares gain 3% after Q1 results. Here’s why Nomura upgraded the stock to Buy

Shares of ITC gained 2% to Rs 288.40 on the BSE after the FMCG major reported a 27% year-on-year (YoY) decline in standalone net profit for the April-June quarter of FY27. Profit stood at Rs 3,579 crore, compared with Rs 4,911 crore in the corresponding quarter last year.

Revenue, however, remained strong, rising 28% YoY to Rs 26,943 crore from Rs 21,070 crore a year ago. Total income increased 27% YoY to Rs 27,589 crore, while total expenses jumped more than 50% YoY to Rs 22,829 crore. EBITDA declined 28% YoY to Rs 4,514 crore during the quarter.

ITC share price: Buy, sell or hold after Q1 results?

Nomura has upgraded ITC to Buy from Reduce and raised its target price to Rs 340 from Rs 300, implying a potential upside of 21%. The brokerage believes the worst is behind the company and sees an attractive risk-reward profile.


It noted that cigarette volumes declined 5% YoY in the first quarter, better than both its own and Street expectations of a decline of more than 10%, although EBIT fell more than expected. Nomura expects the company's profitability initiatives to help restore EBIT per stick to pre-tax hike levels by the fourth quarter of FY27. It also believes further price hikes in the Premium Deluxe and Regular cigarette segments should support pricing growth from the second quarter, while an improving product mix could offset the impact of downtrading.

Also read: Indian cigarette makers ITC, Godfrey Phillips, VST Industries see revenue and profit decline after tax hike

Motilal Oswal has retained a Neutral rating on ITC with a target price of Rs 300, indicating a 7% upside. The brokerage has cut its FY27 and FY28 earnings estimates by 2%, citing slower-than-expected cigarette price hikes that are likely to weigh on earnings in the near term.

While the gradual price increases may help limit the shift of consumers to illicit cigarettes, they also keep cigarette revenue and EBIT volatile as the company continues to pass on the tax hike. Motilal said the FMCG business continues to perform well with improving margins, but expects the earnings pressure in cigarettes to offset near-term positives from the FMCG and paper businesses.

ITC Q1 management commentary

Commenting on the operating environment, the company stated that the first quarter of FY27 was marked by heightened uncertainty due to the ongoing conflict in West Asia, which led to a sharp rise and increased volatility in crude oil and crude-linked product prices, as well as significant trade and supply chain disruptions.

Read more: No slowdown yet, but inflation and El Niño are risks: ITC's Sanjiv Puri

ITC said consumption demand across both rural and urban markets remained resilient during the quarter. However, it flagged imported inflation as a key near-term risk. The company also noted a significant monsoon deficit and lower kharif sowing compared with the same period last year.

According to ITC, a prolonged conflict in West Asia, coupled with emerging El Niño conditions that could weaken the monsoon and intensify heatwaves, may weigh on growth, inflation and the current account.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)