With a focus on volume, the brokerage firm has built the case for a 7% tax hike and a 3% price hike for FY25.
The only positive Emkay Global sees in this inflationary setting is the enhanced competitive position of ITC.
But given the near-term stress, we maintain Add with Mar-25E SoTP-based target price of ₹460 per share," Gupta added.
ITC share price has gained 7% in the past three months, while the stock is down more than 5% year-to-date (YTD).
At 10:50 am, ITC share price was trading 1.16% higher at ₹435.30 apiece on the BSE.
ITC shares got a ratings downgrade from brokerage firm Emkay Global Financial Services on the back of near-term business pressures like cigarette margin stress, demand in paper business and margin weakness, and the slowdown in agri business
Emkay Global recently downgraded its rating on ITC shares to ‘Add’ from ‘Buy’ and also cut ITC share price target to ₹460 apiece from ₹510 earlier, as it sees likely additional pressure from the surge in competition, and expectations of higher tax hike in the Union Budget to fund populist measures.
The brokerage house sees 100 basis points (bps) margin impact from inflation, which would partially be absorbed in mix thrust (premium continues to do well) and cost efficiency.
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"Ideally, this kind of inflation should be passed on to consumers, but historical precedence does not suggest so. In this setting, a tax hike under the new government would be key, where a pass-through of tax and inflation in leaf tobacco would be tough, given the volume pressures," said Nitin Gupta, Senior Research Analyst at Emkay Global Financial Services.
With a focus on volume, the brokerage firm has built the case for a 7% tax hike and a 3% price hike for FY25. It sees ITC’s EBIT margin contracting 60 bps YoY in FY25 to 73.3% of net sales, after which it builds margin recovery in FY26.
The only positive Emkay Global sees in this inflationary setting is the enhanced competitive position of ITC. Additionally, the company is looking to improve its last mile execution, which was indirect earlier. This move is likely to reflect on better realization but has a marginal bearing on the reported margin, Gupta said.
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“The upcoming Union Budget under the new government and surge in competition from the single brand are key near-term watch outs. Hotels demerger is likely to conclude in Q3FY25, after all approvals. With steady macro and cyclical pressure bottoming out in FY25, we remain positive on ITC over the medium term. But given the near-term stress, we maintain Add with Mar-25E SoTP-based target price of ₹460 per share," Gupta added.
ITC share price has gained 7% in the past three months, while the stock is down more than 5% year-to-date (YTD).
At 10:50 am, ITC share price was trading 1.16% higher at ₹435.30 apiece on the BSE.
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