Shares of ITC dropped nearly 2% in opening trade on Tuesday after the company’s December quarter results came below estimates on the operating front, albeit its profit and revenue were in line with Street expectations. The cigarettes-to-hotels conglomerate also declared an interim dividend of ₹6.25 per share for the financial year 2023-24. The dividend will be paid between February 26-28 and February 8 has been fixed as record date, ITC says in an exchange filing.

Reacting to Q3 earnings, shares of ITC opened lower for the second straight session at ₹447.95, down 0.45% against the previous closing price of ₹450 on the BSE. On Monday, the blue-chip stock had settled 1.78% lower.  

In the first hour of trade so far, ITC shares declined as much as 1.8% to ₹441.7, while the market capitalisation slipped to ₹5.56 lakh crore. There was a surge in volume with more than 8 lakh shares changing hands as compared to the two-week average of 5.36 lakh stocks. The stock hit a 52-week high of ₹499.60 on July 24, 2023, and a 52-week low of ₹329 on February 1, 2023.  

ITC, in a post-market release, said that its consolidated net profit (attributable to owners) stood at ₹5,335 crore in the third quarter ended December 31, 2023, registering a growth of 6.5% as against ₹5,007 crore in the year-ago period. The consolidated revenue from operations increased 2% to ₹19,485 crore in Q3FY24 as compared to ₹19,021 crore in the corresponding period last year.

During the quarter under review, EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation) dropped 3.2% YoY to ₹6,024 crore, while expenses soared 5.2% to ₹12,056.69 crore as compared to the year ago period. The EBITDA margin dipped to 36.6% versus 38.4% in the same period last fiscal.

Segment-wise, the hotels business was a stand-out contributor, followed by FMCG, while paperboard and agri remained under severe pressure causing a significant drag in overall profitability.

The revenue from FMCG cigarette business rose 2.5% to ₹8,295 crore as compared with ₹8,086 crore in the year-ago period, contributing around 45% of the revenue this quarter. This was also the third consecutive quarter where the company's cigarettes business witnessed single-digit growth. As per the company, the segment witnesses consolidation on a high base after a period of sustained growth momentum. The sharp cost escalation is leaf tobacco and certain other inputs as well as rise in taxes also impacted revenue growth.

Other businesses in FMCG, including packaged food and personal care products, reported 7.6% growth in revenue to ₹5,209 crore despite subdued demand conditions. The segment’s EBITDA margin expanded 100 bps YoY to 11%, driven by staples, dairy, beverages, fragrances, personal wash, homecare, agarbattis and notebooks.

For the hotel business, it was the “best ever quarter”, with segment revenue rising 18% YoY to ₹842 crore on the back of strong growth in ARRs (average room rates ) and occupancy across properties driven by retail, MICE segments and marquee events like the ICC Cricket World Cup. The EBITDA margin expanded by 470 bps YoY to 36.2%, driven mainly by higher RevPARs (revenue per available room), operating leverage, and strategic cost management initiatives, the company says in its earnings report.

Meanwhile, agri business revenue grew by 14.2% YoY, Y (excluding wheat & rice) driven by value-added products & leaf tobacco. “The operating environment remained challenging due to various policy interventions of the Government of India to ensure food security and control inflation which limited business opportunities for the agri business,” the release highlights.

The revenue from paperboards, paper & packaging business dropped 9.7% YoY, dented by low-priced Chinese supplies in global markets, muted domestic demand, unprecedented increase in domestic wood costs and high base effect. Margins were impacted largely by sharp drop in realisations and unprecedented surge in domestic wood costs due to increased demand from competing industries, says the company.

Analysts see up to 23% upside for FMCG heavyweight

JM Financial in its report says that ITC’s December quarter earnings were below expectations overall. The agency has retained a ‘Buy’ call on the stock with a price target of ₹555, an upside potential of 23.35% from the current market price. “We expect the stock to be muted in the near-term given a weaker overall environment, though we reckon there is potential for re-rating given a sharper capital allocation strategy.”

According to Axis Securities, ITC’s Q3FY24 results were below estimates on the operating front. The agency has cut our FY25 and FY26 PAT estimates by 6% and 4%, respectively, citing a challenging near-term demand environment.

The brokerage has maintained a ‘BUY’ rating on the stock but lowered the target price to ₹500 from ₹540 earlier. “We believe ITC is likely to face near-term pressure as the demand environment is expected to remain challenging, as witnessed by most FMCG companies. However, its long-term growth outlook remains strong as most businesses (excluding Agri/Paper) are on track.”

It adds that the demerger of the hotel business will strengthen ITC's balance sheet and improve return ratios.

(DISCLAIMER: The views and opinions expressed by investment experts on are either their own or of their organisations, but not necessarily that of and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)

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