Here’s why the Street still expects double-digit returns from ITC despite margin pressures

Diversified firm ITC, which is known for consumer products and services, has come a long way from being a meme stock and a laggard over the last couple of years to one of the best performers this year as sanity returned to the market.

ITC came out with its results a few days back and even as it revealed how it is facing a margin pressure from the business, especially in the FMCG goods segment, the company got a thumbs up from the street.

Not only has the company seen its stock price break out and cross Rs 300 recently, it is now sustaining itself at that zone and analysts are pencilling in expectations of further 10-20% growth in the share price. This is despite the company seeing its share price zoom over 50% and outperform FMCG companies over the last one year.

So, what’s driving the stock expectations?

We looked at a bunch of analysts’ reports to pick the key aspects they are highlighting for their clients.

Cigarettes: The key money spinner for the company saw robust demand with revenue rising 29% YoY to over Rs 6,600 crore last quarter and margins expanded to 63.4%. What’s more, volumes have crossed pre-pandemic levels.

Hotels: The hospitality business, often seen as the factor pulling back ITC’s shares, saw a sharp rebound with revenue shooting up more than four times and making a profit of around Rs 110 crore with over 20% margin.

FMCG: Margins in the business remained under pressure but this was on expected lines and the analysts see the fact that it managed to restrict erosion despite inflationary pressure as a positive.

At the same time, segment revenue growth was strong at 19% YoY as the education and stationary products business had good recovery and discretionary categories saw high demand. These categories helped neutralise the muted performance of the hygiene portfolio, which anyway remained above pre-Covid levels.

Agri and paper: These segments were also among the business drivers last quarter with the agribusiness shooting over 82% and the paper unit growing more than 43%.