ITC shares drop 2.5% post Q2 results

Shares of ITC Ltd fell 2.5% in intraday trade on Friday even though the fast-moving consumer goods company reported a 10.3% year-on-year rise in its second-quarter net profit at ₹4,927 crore.

India's equity benchmarks, the BSE Sensex and the NSE Nifty, were down 0.3% and 0.43%, respectively.

The ITC stock opened lower at ₹445 apiece against its previous closing price of ₹450.40 apiece on the National Stock Exchange (NSE). It soon hit an intraday low of ₹438, down 2.5%, taking the company's market capitalisation of ₹5.48 lakh crore.

In its September quarter earnings. ITC cautioned that stock limits on wheat, a ban on non-basmati rice exports and export duty on parboiled rice, further limited business opportunities for the agriculture business.

"While commodity prices declined on a YoY basis, the overall input cost table remains elevated compared to pre-pandemic levels; certain commodities such as wheat, maida, sugar, potato etc. witnessed sequential uptick in prices," the tobacco-to-hotels conglomerate says.

Meanwhile, brokerages continue to remain bullish on the stock. Foreign brokerage Jefferies retained its 'Buy' rating with an unchanged target price of ₹530, implying a potential upside of 17%. Domestic brokerage Nuvama too also has a 'buy' rating for ITC with a price target of ₹560, indicating a potential upside of 24%.

ITC says the performance in the paperboards, paper and packaging segment reflects the impact of low-priced Chinese supplies and muted demand in export markets, a sharp reduction in global pulp prices and a high-base effect. Domestic demand was also relatively subdued in certain discretionary categories, the company says.

A sharp drop in net sales realisation and global pulp prices witnessed during the quarter are likely to have bottomed out and green shoots of revival in demand were visible towards the end of the quarter, ITC says.

"Structural advantages of the integrated business model, Industry 4.0 initiatives, strategic investments in pulp import substitution, High Pressure Recovery Boiler and proactive capacity augmentation in Value Added Paperboards aided in partly mitigating pressure on margins," it says.

ITC says it remains focused on driving profitability improvement through multi-pronged interventions such as premiumisation, supply chain optimisation, digital interventions across the value chain, strategic cost management and judicious pricing actions.

The company’s FMCG business clocked revenue growth of 8.3% year-on-year on a high base to ₹5,292 crore while EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins expanded 150 basis points to 11%.

Both traditional and emerging channels like e-commerce and quick commerce witnessed robust traction driven by sharp execution of channel-specific business plans, collaborations, format-based assortments catering to the needs of a diverse set of shoppers and category-specific sell-out strategies, says ITC.

The company witnessed resilient performance in the cigarette business, aided by sustained volume clawback from illicit trade on the back of deterrent actions by enforcement agencies and relative stability in taxes.

The global economy remains in the grip of a marked slowdown with growth in China and the Euro Area now expected to be lower than earlier estimates reflecting structural weaknesses in these economies, says ITC.

While public investment remains strong in India, consumption demand has been relatively subdued especially in the value segment and rural markets on the back of sub-par monsoons and persistent food inflation which saw a sharp spike during the quarter, the company says.

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