ITC rebounds 6% from Monday's low; analysts remain positive on the stock

On March 31, 2025, ITC had signed a Business Transfer Agreement to acquire the pulp and paper undertaking of Aditya Birla Real Estate Limited. Analysts view this development as a positive.

Shares of ITC Limited moved higher to ₹ 415, up 2 per cent on the BSE in Tuesday’s intra-day trade. The stock has bounced back 6 per cent from its Monday’s intra-day low of ₹ 392 on the BSE. In the past one week, ITC stock has outperformed the market by gaining 2 per cent, as compared to 1.7 per cent decline in the BSE Sensex.

 

ITC is a diversified consumption play with presence in businesses such as cigarettes, fast moving consumer goods (FMCG), agri and paperboard, paper & packaging (PPP) in India. Its strategy tilts towards utilising funds generated from its cash cow cigarette business in improving the growth of FMCG and other businesses. 

 

On March 31, 2025, ITC signed a Business Transfer Agreement to acquire the pulp and paper undertaking of Aditya Birla Real Estate Limited. ITC’s paperboards & specialty papers business is a reputable player in the industry offering a wide range of products manufactured at its four world-class facilities with an annual throughput of over 1 million MT.

 

The acquisition, ITC's management said, will strengthen the market standing of ITC’s paperboards and specialty papers business and engender new opportunities in the domestic and international markets.

 

"India’s per capita consumption at approximately 16 Kg. per annum is low as compared to the global average of 57 Kg., reflecting immense headroom for growth. India is one of the fastest growing markets in the world with demand for paper and paperboards growing at 6 per cent-7 per cent per annum, translating to incremental demand of over 1 million MT annually. End-user industries such as FMCG, Food Service / Quick Service Restaurants, Pharmaceuticals, e-Commerce, Education & Stationery and increasing demand for sustainable packaging solutions are expected to be the key drivers of growth going forward," the management said.

 

According to analysts at Nuvama Institutional Equities, the synergies from this acquisition will shore up ITC’s paper business EBITDA/ton by 30–40 per cent, enhance capacity and lift RoCE to 17-18 per cent. Additionally, this deal gives ITC to access North India with a much faster time-to-market than a greenfield option, better customer access and proximity to market. 

 

The brokerage firm remains positive on ITC given this development and 4 per cent cigarette volume growth in January to March quarter (Q4FY25) along with a stable tax policy in FY26. ITC’s FMCG vertical shall improve gradually from H2FY26.  Analysts retain ‘BUY’ with an SoTP-based target price of Rs571, as they expect ITC’s cigarette earnings before interest tax (EBIT) growth to remain resilient and FMCG’s profitability surge to sustain.

 

Paper industry  Paper industry, meanwhile, has faced a downturn for the past three– four years due to imports from China and increase in India pulp prices, but the brokerage firm do see the situation improving as the government is investigating cheaper imports and domestic pulp availability, wherein different steps have been taken, eventually leading to improvement in paper margin.

 

the March 2025 quarter (Q4-FY25) will overall weak quarter on profits due to FMCG and paper business, analysts said. Cigarette volumes shall increase 4 per cent year-on-year (YoY) on a base of 2 per cent growth in Q4FY24 (6 per cent in Q3FY25 on a base of 2 per cent decline). The brokerage firm anticipates cigarette net revenue/EBIT to grow 6.9 per cent/4.8 per cent YoY (8.1 per cent/4.1 per cent in Q3FY25; 8.1 per cent/5 per cent YoY in Q4FY24).

 

"ITC demonstrated resilience despite a subdued demand environment. The long-term outlook remains positive, supported by a strong share in the cigarette market, stable tax rates in the segment and expected rural demand recovery. Additionally, improving urban demand, increasing nicotine exports and benefits from acquisitions are expected to drive growth. Overall, the strategic price hikes, cost optimization efforts, product innovation and expanding distribution network bode well for the company," Geojit Financial Services said in Q3FY25 result update note.