On October 20, 2024, ITC Limited’s stock saw a slight decrease, closing at ₹488.60, reflecting a drop of 0.38%. This comes shortly after the company’s release of its Q2 FY24 results, which showed a 10% year-on-year increase in net profit, primarily driven by its cigarette and hotel divisions. ITC’s total revenue from operations saw a moderate rise to ₹17,705 crore during this period.
Despite this positive financial performance, the stock faced a nearly 3% decline due to underwhelming revenue growth in some segments, particularly in the paper and agribusiness sectors. However, market experts remain positive about ITC’s long-term prospects, maintaining strong buy recommendations with target prices ranging from ₹525 to ₹560, focusing on the company’s core strengths in FMCG and cigarettes.
In the short term, concerns such as cigarette margin pressures and ongoing challenges in the paper business have influenced market sentiment. On the strategic front, ITC’s decision to demerge its hotels business is viewed as a positive move, potentially unlocking future value for investors.
For investors considering ITC, there are several factors that make the stock intriguing beyond its immediate performance:
- Diversified Business Portfolio: ITC operates across various sectors, including FMCG, hotels, paperboards and packaging, agriculture, and IT services. This diversification provides a cushion against sector-specific downturns, making it more resilient to economic fluctuations. Its FMCG segment, which includes well-known brands in food, personal care, and education, continues to show healthy growth, driven by expanding consumer demand.
- Cigarette Business Strength: ITC holds a dominant position in India’s legal cigarette market, which has proven to be a stable cash cow for the company. With a limited tax hike on cigarettes in recent budgets, the legal market is expected to grow, benefiting ITC as it continues to capture market share from illegal players. This has resulted in sustained earnings visibility for the company.
- Hotel Business Demerger: ITC’s recent move to demerge its hotel business is seen as a potential value-unlocking strategy. The demerger could help streamline operations and allow the company to focus on core segments like FMCG and tobacco, while investors in the demerged hotel entity might see a clearer growth path for this sector.
- Strong Financial Health: ITC’s financial metrics remain robust, with a healthy return on equity (ROE) and a debt-free balance sheet. These factors position it well for both steady dividend payouts and potential capital appreciation. The company’s attractive dividend yield makes it appealing to income-focused investors.
- Sustainability Initiatives: ITC’s focus on sustainability and ESG (Environmental, Social, Governance) initiatives, including investments in renewable energy, water stewardship, and afforestation, aligns it with growing investor interest in socially responsible investing. This focus not only benefits the environment but also positions the company to gain favor with institutional investors prioritizing ESG factors.
- Potential for Further Demergers: Besides the hotels demerger, there is speculation that ITC might consider spinning off other segments, such as its FMCG or IT services businesses. These moves could further enhance shareho