ITC stock lacks near-term spark

ITC Ltd’s investors have little to complain about. Since its meeting with analysts in December 2021, the cigarette-maker’s shares have doubled. What is more, the strategies outlined by the company at its recent analysts’ meet point to solid long-term prospects.

- Vineetha sampath

In its mainstay business, ITC aims to maximise the potential of cigarettes within the tobacco basket. For perspective, currently, legal cigarettes form only 9% of the total tobacco consumption in the country, although the tax revenue contribution stands at 80%. Further, there is scope for grabbing volumes from the illicit trade, which still forms about one-third of the industry. 

Of course, a stable taxation regime would help. ITC noted that during times of steep increases in taxes, revenue has grown at a comparatively slower pace versus periods when the taxation was stable.  

While ITC’s strategy is encouraging, from a near-term perspective, growth catalysts for the cigarette business are few and far between. This is also partly owing to the higher base for volume growth. In fact, in the September quarter (Q2FY24), ITC’s cigarette volume growth year-on-year is estimated to have dropped for the fifth time in a row to 4.5%.