Following Q2 earnings, ITC's share price dropped by approximately 2%. Should you purchase the stock? the leading brokerages have to say

 Following Q2 earnings, ITC's share price dropped by approximately 2%. Should you purchase the stock? the leading brokerages have to say

Following the announcement of the company's second quarter (Q2) results on Thursday, October 18, ITC's share price dropped by roughly 2% in early transactions on Friday, October 20 on the BSE. ITC's stock price started Friday's trading at 449.55 versus its previous close of 450.30 and dropped 1.6% to a level of 443.25 thus far.

Compared to an increase of 11% in the Sensex, the stock benchmark, ITC share price has increased by roughly 31% over the last year. On July 24 of this year, the stock reached its 52-week high of $499.60, while on December 23 of last year, it reached its 52-week low of $325.35, both on the BSE.

The stock traded 1.25 percent down at 444.65 on the BSE at 9:20 am.

Results for ITC Q2: On Thursday, ITC announced that its standalone net profit for the September quarter of FY24 increased by 10% YoY to $4,927 crore. The company's operational revenue was 17,705.08 crore as opposed to 17,159.56 crore in the same period last year.

ITC's tobacco and hotel business areas drove the company's growth during the third quarter of 2017. Additionally, the business reported significant growth in its FMCG area, with segment sales increasing by 8.3% YoY in Q2 FY24.

Brokers continue to be optimistic about ITC

After the company's remarkable performance in the cigarette and FMCG industries, the majority of brokerage companies maintained their favorable opinions on ITC stock. Let's look at what they have to say:

Financial Services by Motilal Oswal

With a target price of $535, Motilal Oswal maintained its buy recommendation on ITC stock and said that ITC's earnings visibility continues to be superior to that of competitors.

"At a time when volatility hangs over the industry, led by high inflation, erratic monsoons, and continued weak rural sales, ITC’s comeback in cigarette volumes offers decent revenue visibility at reasonable valuations as well as attractive dividend yield," Motilal Oswal said.

"ITC achieved a solid EPS (profits per share) increase of 23.5% in FY23, and we anticipate an EPS CAGR of roughly 12% over the next two years. According to the brokerage company, ITC's profits projection is stronger than that of other large-cap staple companies in FY25 and in terms of a two-year CAGR ending FY24.

Wealth Management by Nuvama

With a target price of $560, Nuvama Wealth Management maintained its buy recommendation on the ITC stock, representing a 24% gain from the firm's closing price of 450.30 on Thursday, October 19 on the BSE.

Nuvama emphasized that ITC saw respectable growth in the majority of its sectors. Given a small tax increase in the union budget for FY24, followed by two years with no tax increases, it anticipates that legal cigarette players would overtake illicit players on the market, who now own about one-fourth of the market.

ITC would benefit greatly as the biggest legal participant, according to Nuvama.

The organization wants to achieve market share increases in the majority of categories within the FMCG industry. The increase of EBITDA margin is going in the correct direction.

ITC keeps gaining market share in the tobacco industry as organized share increases. It is encouraging for the firm because other areas have been ramping up with portfolio and network development, according to Nuvama.

Nick Bang

With a target price of $525, Nirmal Bang has also kept his buy call on the stock in place.

The trading company emphasized that ITC's cigarette volume rise of roughly 4% YoY was much better than its prediction of a 2% YoY fall. As a result, cigarette volume held steady at a four-year average of mid-single digits, far higher than the previous flattish to decreasing trends.

According to Nirmal Bang, cigarette EBIT growth was strong at 8% YoY and is anticipated to continue in the next quarters.

According to the trading company, ITC's profits CAGR from FY23 to FY25E may be close to 12%.

"Riding on the back of EPS (earnings every share) CAGR of about 11 per cent during the preceding four years, ITC’s increase in net profit does seem to have turned the corner following the struggles of the past," Nirmal Bang said.

"We see the value being unlocked from the hotel sector demerger as a positive step, particularly if it is ultimately followed by the demerger of the other FMCG and IT services companies as well. Future rerating will be sharper if the same fructifies, according to Nirmal Bang.

Global Financial Services Emkay

Emkay preserved a buy call on the stock but lowered the target price from 535 to 525.

ITC had consistent Q2 profits, but topline growth of 3% fell short of expectations, according to Emkay. The paper industry's decline had a muted impact on non-cigarette activities.

We expect short-term difficulties due to (a) cigarette margin pressure and (b) deterioration in the paper industry. After accounting for this, we still see a solid long-term prognosis for ITC. Following the first-half (H1FY24) results, we make the following adjustments: (a) reduce cigarette profits by 1%; (b) account for persistent restrictions on wheat and rice exports for the agribusiness; and (c) reduce EBITDA for the paper business by around 15% for FY24, according to Emkay.

In addition to this, CNBC-TV18 stated that Morgan Stanley maintained its "overweight" rating on ITC with a target price of $493.

According to Morgan Stanley, who was reported by CNBC-TV18, ITC's Q2 EBIT for its core FMCG and tobacco businesses exceeded forecasts. Delivering cigarette volume increase is still essential for outperformance.