Tobacco-to-FMCG conglomerate ITC, a darling for retail investors, has seen some correction in its share price in the recent past despite a slew of positive developments. The index heavyweight has fallen around 15% year-to-date (YTD) and over 10% since the demerger of hotel business from the conglomerate, which can be partially attributed to weak broader market, with Sensex and Nifty sliding nearly 4% in the calendar year 2025.

On January 6, 2025, ITC's share price was discovered at ₹455 apiece on the BSE in a special pre-open session conducted after the hotels arm, ITC Hotels, spilt-off from the group. From ₹455 on January 6, the bluechip stock has declined to ₹410 levels today, eroding nearly 10% of its market value worth around ₹57,000 crore. On the other hand, shares of ITC Hotels, which officially made its debut on January 29, 2025, are down nearly 15% from its listing price of ₹188 apiece on the BSE.

Why ITC shares are under stress

The sell-off in ITC shares can be attributed to overall weak market sentiments and mixed December quarter results, which raised concerns about the FMCG heavyweight’s near-term outlook. The ongoing urban slowdown, higher inflation, and weak profitability in FMCG and paperboards, paper & packaging segments in Q3 FY25 further dented sentiments.

For the third quarter ended December 2024, Chairman and MD Sanjiv Puri-led company reported 7% year-on-year decline in its consolidated net profit at ₹4,935 crore compared to ₹5,335 crore in the same period last year. The company delivered consolidated revenue growth (ex-hotel business) of 9% YoY in Q3 FY25, mainly led by the cigarette business. EBITDA grew by 2% YoY to ₹6,360 crore. The board of the cigarette-to hotel conglomerate declared an interim dividend of ₹6.50 per share for FY25, payable between March 6 and March 8, 2025, to eligible shareholders.

Post Q3, ITC acquired FMCG brand Prasuma to expand its present in the rapidly growing frozen foods market. The company, which has been in the ready-to-cook (RTC) segment since 2019, plans to acquire 100% stake in Prasuma over a period of 3 years, while picking up a 43.8% stake by March 2025 in the first tranche.  The balance stake will be acquired, in tranches, by June, 2028. Prasuma's brands include ‘Prasuma’, ‘Meatigo’ and ‘Prasuma Momo Kitchen’ offering diverse products.

There is speculation in the market that the company is also in talks with Norway's Orkla ASA to acquire its Indian businesses, MTR Foods Pvt. Ltd and Eastern Condiments Pvt. Ltd, in a deal valued at around $1.4 billion. The move is being seen as a part of the group’s strategy to expand its footprint in key southern markets.

Analysts remain bullish on ITC shares

Despite recent correction, analysts remain bullish on ITC shares, with Motilal Oswal, JM Financial, Nuvama retaining ‘Buy’ call on the stock.

Post Q3, Motilal Oswal reiterated ‘BUY’ rating on ITC with target price of ₹550 per share. The brokerage cut earnings per share (EPS) estimates by 4% for FY25 and 5% for FY26, mainly due to the impact of the hotel business demerger which came into effect in January 2025.

JM Financial also maintained ‘BUY’ call on the stock, with revised price target of ₹515, saying that pace of recovery in FMCG needs to be watched due to heightened competitive scenario in foods. Demerger of Hotels business will reduce the capex intensity and aid improvement in return on invested capital (ROIC), it said.

Another domestic brokerage house Nuvama has also retained ‘BUY’ on ITC shares with a price target of ₹571. “We stay cautious in near term given ongoing urban slowdown, inflation in key RM and weak profitability in FMCG and paperboards, paper & packaging segment,” it said in a note.

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