Mumbai: The Mumbai headquartred brokerage firm Emkay Global Financial Services has downgraded its rating on ITC shares from 'buy' to 'add' citing concerns over cigarette margin stress, demand in the paper business, and margin weakness, coupled with a slowdown in the agri-business sector.
Emkay Global has revised its price target for ITC shares to Rs 460 apiece from Rs 510, highlighting the potential additional pressure from heightened competition and expectations of a higher tax hike in the upcoming budget to fund populist measures.
Nitin Gupta, senior research analyst at Emkay Global Financial Services, emphasized the impact of inflation, estimating a 100 basis points margin impact, partially absorbed by mix thrust and cost efficiency. She acknowledged the challenge of passing on inflation to consumers, particularly in the leaf tobacco segment, given volume pressures.
Meanwhile, Emkay Global has advocated for a 7 percent tax hike and a 3 percent price hike for FY25. It anticipated ITC’s EBIT margin to contract by 60 bps YoY in FY25 to 73.3 percent of net sales, with a projected margin recovery in FY26.
Despite these challenges, Emkay Global noted the enhanced competitive position of ITC and the company's efforts to improve last-mile execution. The anticipated conclusion of the hotel demerger in Q3FY25 and a positive outlook on ITC over the medium term are highlighted, although near-term stress is acknowledged.
ITC's share price has experienced mixed performance, with a 7 percent gain in the past three months but a more than 5 percent decline year-to-date (YTD). At 10:50 am, ITC share price was trading 1.16 percent higher at Rs 435.30 apiece on the BSE.
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