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; provides strategic sourcing support to the company’s cigarette and branded packaged foods businesses by ensuring high-quality supplies.”

Meanwhile, “the e-Choupal network established by ITC gives it a phenomenal sourcing edge, which has helped it transform into a consumer giant especially in foods business.We expect that trend to improve, going ahead,” said ITC

ITC: Key risk factors

Nuvama listed out that some of the key risks associated with owning the ITC shares include, “High incidence of taxation and strict regulatory norms on cigarette usage in public and packaging poses threat to cigarette volume growth. Growing contraband market for cigarettes also poses a significant threat to the cigarette business.” That apart they also raised concerns about “Slowdown in the macroeconomic environment is a major threat to hotels business.”

ITC Hotels listing likely in February?

Given the recent correction in the ITC share price in the light of the hotel business demerger, Nuvama expects the market cap of the “Hotel business to be around Rs 42000 crore.” They are expecting a listing in February around Rs 200 a share level. Nuvama has assigned “holdco discount to the hotel business of 20% to ITC’s Hotel business.”