- ITC shares surged over 4% to an intraday high of ₹292.55 on the National Stock Exchange (NSE) on August 3, following positive reports from global investment firms despite a profit decline.
- ITC reported a 27% decline in standalone net profit to ₹3,579 crore for Q1 FY27, compared to ₹4,911 crore in the same period last year.
- Brokerages noted that the worst impact of the recent cigarette tax hike may be behind ITC, with resilient cigarette volumes easing concerns.
- Nomura and Jefferies reported that the decline in cigarette volumes was better than expected, indicating a potential recovery in profitability.
- ITC's revenue from operations increased by 28% year-on-year to ₹26,943 crore during the quarter, contrasting with the profit decline.
- Brokerages maintained positive outlooks for ITC, suggesting that the impact of the tax increase on cigarettes is likely to moderate over the financial year.
- ITC's cigarette segment is crucial for its earnings, making the recovery of this segment a key focus for investors.
Shares of ITC rose over 4% on August 3, reaching an intraday high of ₹292.55, following a 27% decline in Q1 profit to ₹3,578.8 crore. Despite the profit drop, brokerages expressed optimism, suggesting that the worst impact of recent tax hikes on cigarettes may be over.
Analysts from Nomura noted that the 5% decline in cigarette volumes was better than the anticipated 10%, indicating resilience in consumer demand. Jefferies highlighted that the earnings miss was largely due to gradual price hikes and interventions to mitigate the impact of a 50% tax hike.
The company's revenue from operations increased by 28% year-on-year to ₹26,943 crore, contrasting with a 14.4% decline in revenue to ₹16,908 crore. CLSA maintained an Outperform rating with a target price of ₹388, while Nomura upgraded the stock to Buy with a target of ₹340, citing favorable risk-reward dynamics.
Despite the earnings miss, brokerages retained positive long-term views, suggesting that the impact of the tax increase on cigarettes is likely to moderate. PhillipCapital indicated that the June quarter might mark the trough for cigarette earnings, while HSBC anticipated a gradual recovery as price hikes take effect.
Overall, ITC's performance reflects a strategic approach to pricing and market share protection, with analysts optimistic about the company's ability to restore profitability in its cigarette business by the end of the fiscal year.
“ITC's cigarette volumes fell only 5–6% in Q1, better than the estimated 10% decline, easing fears of a shift to illicit cigarettes. Nomura upgraded the stock to Buy with a ₹340 target, saying the worst appears to be behind the company.”
