ITC Shares Dip Wednesday: Underperforming Market and Sector Peers in 2024

ITC Ltd. shares inched down 0.05% to 437.05 Indian rupees on Wednesday, as the broader market saw a rise of 0.75% in the BSE SENSEX Index 1 to 76,404.99. This performance comes amidst a year of underperformance for ITC, with its stock down 1.90% compared to the 11.75% gain in the Sensex and a marginal 0.09% gain in the BSE FMCG index.

ITC's underperformance can be attributed to several factors, including a tepid show in 2024, a significant decline since its 52-week high, missed earnings estimates, and a slowdown in its FMCG business. In the September quarter, ITC's net profit missed Street estimates, falling around three percent in early deals the next day. Analysts had predicted a net profit of Rs 3,725 crore over revenue of Rs 12,875 crore, but the company reported a net profit of Rs 3,697.2 crore and revenue of Rs 13,553.5 crore.



ITC's cigarette business, a significant contributor to its revenue, has shown steady growth in recent quarters. In the second quarter of the FY25 (July-September 2024), ITC's cigarette volume rose by 9%, which was in line with analysts' estimates of 9-10%. This growth was driven by market share gains for organized players from the illicit cigarettes industry due to strong deterrent actions by enforcement agencies and stability in taxes on cigarettes.

However, commodity inflation and cost pressures have been significant challenges for ITC's FMCG business, leading to margin compression. In the current session, ICICI Securities highlighted that "FMCG had a resilient performance while margins are under pressure due to commodity inflation." This indicates that while the FMCG business has maintained its growth, the increased costs of raw materials have negatively impacted its profitability.

ITC has been addressing these challenges by implementing strategic measures to navigate the cost inflation and maintain its market position. One such strategy is calibrated price hikes to offset the increased costs. According to ICICI Securities, "Cigarettes volume growth trajectory continues to be stable at 3% despite calibrated price hikes to navigate cost inflation and consumer demand being under pressure." This suggests that ITC has been able to maintain its cigarette volume growth despite increasing prices to counter the impact of commodity inflation.

In conclusion, ITC's underperformance in 2024 can be attributed to various factors, including missed earnings estimates, a slowdown in its FMCG business, and margin compression due to commodity inflation. However, the company's cigarette business has shown steady growth, and ITC has been implementing strategic measures to address cost inflation and maintain its market position. As an investor, it is essential to stay informed about the company's performance and the broader market trends to make informed decisions.