Mirae Asset Sharekhan has reaffirmed its 'Buy' rating on ITC Ltd, maintaining a price target of Rs 522. Despite margin compression due to raw material inflation and sectoral headwinds, the company’s diversified segments—cigarettes, FMCG, and agri—are holding ground. Strategic acquisitions and the hotel business demerger have fortified ITC’s balance sheet and long-term growth trajectory. With expectations of volume recovery and government capex revival, the stock offers value at 24x FY26E earnings. Investors are advised to accumulate with a long-term view.

ITC's Q4 Snapshot: Growth Amid Margin Pressure

Revenue climbed 9.6% y-o-y to Rs 17,248 crore in Q4FY25, led primarily by robust performance in the agri business (+18% y-o-y). However, inflationary stress pulled operating margins down 242 bps y-o-y to 34.7%.

Cigarettes posted 6% revenue growth with volume uptick of ~5%

Agri exports—especially leaf tobacco and value-added products—powered topline growth

Operating profit rose 2.5% y-o-y to Rs 5,986 crore; PAT was up 0.8% to Rs 4,875 crore

FY25 adjusted PAT stood at Rs 19,669 crore, marginally down by 1.2% y-o-y

Segment-Wise Insights: Agri Shines, FMCG Faces Margin Heat

Agri exports emerged as a strategic asset, driven by strong global demand and operational agility. Meanwhile, FMCG's margin erosion was attributed to elevated input costs for items like edible oil, wheat, and packaging.

Strategic Initiatives: Future-Ready FMCG Play

ITC is doubling down on non-cigarette FMCG, executing a portfolio pivot:

Acquisitions: 24 Mantra Organic (Sresta), Mother Sparsh Baby Care, and Prasuma (Ample Foods)

These bolster ITC’s reach in organic food, baby care, and premium frozen categories

Direct distribution reach now stands at 2x pre-pandemic levels; digital and modern trade touch 31%

These strategic shifts are not only future-facing but margin-accretive over the medium term, setting the stage for higher returns and de-risking from cigarette dependency.

Hotel Business Demerger: Unlocking Capital Efficiency

The hotel division has been demerged into ITC Hotels Ltd (ITCHL), streamlining ITC's core operations:

PAT from discontinued operations surged to Rs 15,104 crore (vs Rs 512 crore in FY24) due to exceptional gains

This move enhances ITC's return on capital metrics and aligns with asset-light strategy

The post-demerger ITC is leaner, more agile, and better positioned to scale its core verticals.

Valuation and Investment Rationale

Despite sectoral headwinds, ITC trades at 24x FY26E and 22x FY27E EPS, below peers like Hindustan Unilever (51.9x FY26E). Key financial metrics include:

The valuation remains attractive when viewed against sector leaders and the company's improving return profile.

Macro and Sector Outlook: Stability on the Horizon

Tax stability in Union Budget 2025 bodes well for cigarette volumes

Rural demand expected to recover on monsoon and inflation moderation

Government capex and RBI liquidity support could spur broader consumer demand

Gradual volume revival and margin normalization are forecasted for H2FY26, especially in the FMCG vertical.

Key Risks to Monitor

Any upward revision in GST or excise on cigarettes could dent profitability

Prolonged input inflation may delay margin recovery in FMCG

Weakening consumer sentiment poses short-term demand risks

Final Word: Accumulate ITC for Steady Compounder Returns

ITC's diversified portfolio, ongoing strategic realignment, and disciplined capital allocation post-hotel demerger offer a compelling case for long-term investors. The management’s strong execution and focused shift toward high-growth verticals like organic foods, premium frozen snacks, and baby care are timely and tactical.

Mirae Asset Sharekhan maintains its ‘Buy’ call with a 12-month price target of Rs 522. At CMP of Rs 443, the stock provides a potential upside of ~18%. Long-term investors can consider accumulating on dips, supported by stable volumes in core cigarettes and scalability in FMCG and agri exports.