ITC Stock Waver: Analysts Divided on Recovery Path

ITC's share price is currently a focal point for investors following its second-quarter financial results. Analysts are divided on its future prospects, particularly concerning the company's core cigarette business, which is navigating a challenging period. Jefferies, however, expresses optimism for a gradual easing of this pressure over the coming years, maintaining a 'Buy' rating with a target price of Rs 350.

Motilal Oswal presents a more cautious outlook, maintaining a 'Neutral' rating and a target price of Rs 285. This stance stems from the continued pressure on cigarette earnings and the time required for price increases to fully counterbalance elevated taxes. The brokerage notes that ITC has adopted a calibrated pricing strategy to prevent consumers from shifting to the illicit market.

Despite the cigarette segment's struggles, evidenced by an estimated 8% year-on-year decline in volumes and a 21% drop in net revenue for Q2, ITC's other businesses are performing well. The FMCG segment reported a 19% sales increase and a 31% EBIT rise. Additionally, the paperboards and packaging business saw revenue jump 36%, partly due to an acquisition, while the agriculture business grew 13%.

Jefferies' positive view is anchored in the potential for cigarette volume recovery through market share gains from illicit operators, alongside sustained momentum in FMCG. The investment bank has trimmed its FY27-29 earnings estimates by 2-3% but maintains its sum-of-the-parts valuation. The differing perspectives highlight the critical importance of the cigarette segment's recovery trajectory, while FMCG, paperboards, and agriculture are expected to support overall performance.