ITC Shares Decline 1.3% Following Q4 Earnings Release

ITC Ltd's Quarterly Profit Rises, But Shares Fall Amid Tax Hike and Raw Material Costs

Shares of ITC Ltd, the consumer goods major behind the Gold Flake cigarette brand, fell over 1% on May 22 despite reporting a marginal rise in quarterly adjusted profit. The company's quarterly profit before exceptional items and tax rose 4.3% to Rs 6,692 crore in the March quarter.

The firm's core cigarette business cushioned some of the impact of a tax hike and an Iran-war-led rise in raw material costs. Prices of key raw materials such as edible oil, soap noodles, and packaging inputs rose sharply towards the end of the March quarter due to supply chain disruptions and logistical challenges from the Middle East conflict. Excise duty hike on cigarettes also squeezed the bottomline.

However, cost-control measures, price hikes calibrated to protect volumes, as well as a change in the product mix took some of the pressure off. Revenue from the cigarettes business, which accounts for the bulk of ITC's profit, rose about 32% to Rs 11,066 crore. Overall revenue climbed 17% to Rs 21,695 crore.

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ITC's consumer goods segment, which houses brands such as Aashirvaad, Sunfeast, and Bingo, logged a 15% growth in revenue on broad-based growth across categories. The segment's EBITDA margin rose more than 200 percentage points to 11%. The agri business, however, faced significant disruption during the year, triggered by tariff measures imposed by the U.S. as well as challenges from the Iran war, resulting in a 16% fall in revenue.

Domestic brokerage Motilal Oswal Financial Services has a Neutral rating on ITC with a target price of Rs 335. Global brokerage Jefferies has a 'Hold' rating on the stock with a target price of Rs 350. Global brokerage Citi has a 'Sell' rating on the stock with target price of Rs 290. Meanwhile, global brokerage CLSA has an "Outperform" rating on the stock with target price of Rs 390.

At 12:05 pm on May 22, ITC shares were trading 1.2% lower at Rs 304.2 apiece. The company's performance in the quarter was marked by a significant increase in cigarette taxes, which likely led to channel filling and potential product mix changes due to pricing differentials, thereby impacting overall performance during the period.

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