Why ITC Share Price is Falling

The FMCG sector in India is a crucial part of the economy, contributing significantly to growth. It includes essential products like food, beverages, and personal care, catering to a vast consumer base across the country.

With rising demand in rural and urban areas, FMCG companies saw consistent growth over the years. However, competition remains fierce as companies strive to maintain profitability.

ITC is one of the reputed names in the Indian FMCG sector. Known for its diversified business, ITC has a strong presence in areas like cigarettes, packaged foods, personal care products, and more.

Besides FMCG, ITC also operates in the hospitality, paperboards, and agribusiness sectors.

As a prominent player in the industry, investors closely watch ITC's quarterly earnings. The FMCG giant declared its quarterly results yesterday, generating significant interest.

Let's take a closer look at its Q2 FY24 results to understand the current sentiment around the stock.

Moderate Quarterly Results

ITC reported a net profit of Rs 5.1 billion (bn), a moderate 3% increase from Rs 4.9 bn in the same period last year. Subdued demand, unusually heavy rainfall in some regions, high food inflation, and a sharp rise in specific input costs negatively impacted the company's profit.

In contrast, ITC's revenue from operations surged by 17% to Rs 19.3 bn, compared to Rs 16.6 bn in the previous year's quarter. This growth was attributed to strong performance in the agri-business and hotel segments, showcasing the company's resilience in a challenging operating environment.

While the cigarette, agri, and hotel divisions performed well, the paperboards, paper, and packaging segment encountered difficulties. This was due to low-priced imports from China, weak domestic demand, and increasing domestic wood costs, which affected overall profitability.

Despite the positive revenue growth, ITC's share price only rose by 2% in a single day. This modest increase suggests that investors may have mixed feelings about the overall performance, especially given the challenges faced in some segments.

Along with reporting quarterly results the company also made certain other important announcements. Let's take a look at them.

Important Updates

ITC has recommended the appointment of Siddhartha Mohanty as a Non-Executive Director for three years, effective from1 January 2025. If appointed, he will represent the Life Insurance Corporation of India.

Apart from this, the company has also approved the acquisition of shares in EIH and HLV from Russell Credit. This move aims to consolidate ITC's shareholding in these companies. Following the acquisition, ITC's stake will rise to 16.13% in EIH and 8.11% in HLV.

Additionally, ITC approved the acquisition of equity share in Greenacre Holdings, an unlisted subsidiary of Russell Credit, at book value. These acquisitions require approval from the Board of Directors of Russell Credit Limited and the completion of necessary documentation.

The National Company Law Tribunal (NCLT) has sanctioned a Scheme of Arrangement between ITC Limited and ITC Hotels Limited. This scheme will take effect once the certified copy of the NCLT order is filed with the Registrar of Companies in West Bengal, along with fulfilling other stipulated conditions.

What Next?

ITC has laid out ambitious plans for the future, especially in the hospitality sector. The company aims to open more hotels overseas, with a focus on nearby countries and the Middle East.

Recently, it launched its first international property and plans to add 70 new hotels in India over the next five years. This expansion follows the successful opening of 22 properties in the last two years.

Additionally, ITC seeks to grow its presence in the fast-moving consumer goods (FMCG) sector by exploring opportunities in international markets. The company is open to understanding different regions for business expansion and may consider entering new markets for its various verticals.

It is important to keep in mind that the overall FMCG sector is experiencing pressures, particularly following the disappointing revenue figures from market leaders.

Investors are wary as inflation continues to affect consumer spending. With rising raw material costs and constrained pricing flexibility, margin pressure is likely to persist in the short term.

Industry experts predict that even as rural demand recovers, urban markets may struggle, which could impact ITC's growth trajectory.

As the company implements its expansion plans, it aims to invest between Rs 7-10 bn annually in renovations and new properties.

While these initiatives indicate a proactive approach, they must be coupled with effective management of the prevailing economic challenges to ensure long-term success.

How ITC Share Price has Performed Recently

In the last month, ITC share price was down 6.8%.

In 2024, so far it is up 3%. Additionally, it is up 11.5% in the past one year.

The stock touched its 52-week high of Rs 528.6 on 27 September 2024 and a 52-week low of Rs 399.3 on 12 March 2024.

About ITC

ITC is one of the largest fast-moving consumer goods (FMCG) companies in India.

It has 78% market share in cigarettes and presence in other business segments such as staples, biscuits, and personal care products.

The company is also present in paperboard, printing & packaging business.

The company completed 100 years in 2010 and it employs over 36,500 people at more than 60 locations across India and is part of the Forbes 2000 list.

To know more, check out ITC company fact sheet and quarterly results.

For a sector overview, read our FMCG sector report.

You can also compare ITC with its peers:

ITC vs VST Industries

ITC vs Godfrey Philips

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...