Global investment bank Citi has upgraded its rating on ITC Ltd. shares to 'Buy' from 'Sell', projecting a significant 17 percent potential upside. The firm revised its target price for the FMCG major to Rs 300, up from an earlier Rs 270, despite acknowledging near-term challenges for the company.
Citi's Rationale for Upgrade
Citi's decision stems from a belief that the earnings downgrade cycle for ITC is largely complete, thereby improving the risk-reward profile at current valuations. The investment bank noted that a 34 percent correction in ITC's stock during 2026 has already factored in associated volume and profitability risks.
Key to Citi's optimistic outlook are the mitigating actions ITC has implemented following a sharp increase in cigarette taxation. These include calibrated price increases and strategic portfolio interventions across crucial segments. Citi estimates that approximately 75 percent of the tax hike has been offset through price adjustments. Additionally, new product launches in segments like LSFT (Low-Stress Filter Tipped) and Premium-DSFT (Double-Stressed Filter Tipped) are expected to help retain consumers within ITC's product range, even amidst potential downtrading.
Profitability Outlook Amidst Headwinds
While acknowledging that near-term cigarette volumes could face pressure from competition, including both branded rivals and illicit products, Citi anticipates an improvement in cigarette profitability sequentially through fiscal year 2027. This recovery is expected as the pricing actions take full effect.
The brokerage raised its EPS (Earnings Per Share) estimates for FY27-29E by 3-11 percent. It values the cigarette segment at 12 times earnings per share, driven by the faster-than-expected price hikes that are contributing to a recovery in both revenue and margins. Citi believes the profitability reset is largely behind ITC, with price increases and portfolio adjustments supporting a gradual recovery.
The firm forecasts cigarette EBIT (Earnings Before Interest and Taxes) to decline by 23 percent in FY27E before rebounding in FY28E as pricing strategies gain traction and profitability normalizes. Citi highlights potential further regulatory actions and competition from other branded players and illicit trade as key factors to monitor.