BofA raises ITC stock price target to INR470, maintains buy rating

BofA Securities raised its price target on ITC Ltd. to INR 470 from INR 465, reiterating a Buy rating after the company's Q4 FY25 results aligned with market expectations; revenue, EBITDA, and adjusted PAT grew 10%, 2%, and 1% year-over-year, respectively. ITC's cigarette business saw net revenue and EBIT rise by 6% and 4% year-over-year, with volume growth exceeding BofA's estimates, though other FMCG and paper businesses were weaker due to inflation and cyclical downturns. The firm anticipates a reversal of these challenges in the next 2-3 quarters, underpinning the revised price target based on a Sum of the Parts valuation and a multiple of 25x FY27 EPS.

Analysis

BofA Securities has increased its price target for ITC Ltd. to INR 470.00 from INR 465.00, reaffirming a Buy rating, subsequent to the company's fourth-quarter fiscal year 2025 financial results, which were in line with market expectations. ITC reported a 10% year-over-year growth in net revenue, a 2% rise in EBITDA, and a 1% increase in adjusted profit after tax, indicating moderate expansion despite prevailing economic challenges. The company's significant cigarette business demonstrated robust performance, with net revenue and EBIT growing by 6% and 4% year-over-year, respectively; cigarette volume growth, estimated at around 5% year-over-year, surpassed BofA Securities’ projection of 4% and favorably positions ITC against its India Staples sector peers. Conversely, the other Fast-Moving Consumer Goods (FMCG) and paper businesses registered a weaker quarter, a development that was anticipated due to inflationary pressures affecting both cigarette and non-cigarette FMCG operations, alongside a cyclical downturn in the paper industry. BofA Securities expresses optimism that these challenges may reverse within the next two to three quarters, potentially fostering improved earnings growth. The new price target is based on a Sum of the Parts (SoTP) valuation, implying a multiple of 25 times the forecasted earnings per share for fiscal year 2027, reflecting confidence in ITC's recovery and growth trajectory.

Key Decisions for Investors

• Investors should consider the positive outlook reflected in BofA Securities' reiterated Buy rating and increased price target, supported by the resilience of ITC's core cigarette operations and anticipated recovery in other segments.
• Monitor macroeconomic indicators for easing inflationary pressures and signs of a cyclical upturn in the paper industry over the next two to three quarters, as these are critical catalysts for ITC's projected earnings growth.
• Evaluate the balance within ITC's diversified business model, particularly the sustained performance of the cigarette division against the recovery potential of its other FMCG and paper businesses, when assessing long-term investment viability.