Seeking value in ITC and Godfrey Phillips? Tobacco stocks gain in FMCG play

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₹223 crores, while NTC Industries’ standalone net profit fell almost 78% to ₹44 crores in Q1 FY25. Even ITC, the most diversified player in the tobacco business, reported a mere 0.3% on-year rise in its standalone net profit to ₹4,920 crore in the same period. Also Read: ITC shares hit a new high post budget.

What is next? However, ITC’s cigarette business revenue grew around 7% on-year to ₹7,900 crore, while its Ebit margins increased 20 basis points on-year to 62.6% in the quarter ended June. Ebit stands for earnings before interest and taxes. "ITC’s premium products helped them protect their (profit) margins despite inflation in raw tobacco," Abneesh Roy, executive director and head of research committee at Nuvama Institutional Equities told Mint.

“These (premium products) will be growing much faster than their economical offerings." The company's premium offerings like slim and capsule cigarettes have helped diversify its product mix, analysts said, but remain sceptical of its current valuation. “Even as we remain convinced about the longer-term earnings growth prospects, limited upside leads us to downgrade our rating on ITC to ‘accumulate’ as we await a better entry point," a Nirmal Bang Institutional Equities report said. As the Indian government refrained from hiking taxes on cigarettes in the current fiscal year, it helped the organised tobacco sector to claw back some market share from the illicit segment.