Nuvama on ITC: Budget jitters for Tobacco, but watch out for THIS segment…

Nuvama is Cautious in ITC. This is because of continued concerns in the FMCG segment and the market anticipating a potential hike in cigarette tax, albeit to a small extent. Here is how it could alter business valuations and listing plans for ITC Hotels.

Brokerage firm Nuvama is cautious on ITC in the near-term. Though they have retained the ‘Buy’ rating on the stock, the target price has been revised lower to Rs 571 from Rs 580. This is because Nuvama expects ITC’s FMCG business to be weak this quarter. On the flip side, “recovery in the agri business, a healthy dividend yield and comfortable valuations remain key positive triggers,” stated the report.

February is an action packed month for ITC with the Budget and also the potential listing of ITC Hotels.

ITC and Budget 2025: Will there be a hike in cigarette tax?

All eyes are on the cigarette business of ITC ahead of the Budget. According to Nuvama, “there is a low probability of a sharp hike in cigarette tax in the upcoming Budget.” Given the fact that a small tax hike was anyway taken last year and cigarette volumes are gradually recovering, “If a double-digit overall tax hike happens, it will have an adverse impact on tax collections due to market share gains by illegal cigarettes. Sharp tax hikes on cigarettes have an adverse impact on demand for legal cigarettes as consumers shift to smuggled/illegal cigarettes, which are already one–fourth of the market,” they added. As per the report, “a minor hike is possible (given slowing overall GST collections), but that should not be a big concern for the cigarette industry.”

FMCG seen weak

The overall FMCG business is expected to see a weak Q3. Theer are expectations of a a dip of almost 10% in profits YoY with just 3% YoY sales growth. The sales growth for the FMCG section is expected to be in the range of 4.5-5.5% over the current and the next fiscal.

Also read: ITC Hotels listing update. 5 things to know

Agri business the bright spot?

The Agri business has of course not followed the same trend and it has seen a robust performance “aided by tobacco leaf and traded commodities exports;

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