---
endpoint: analytics
pattern: Consumer
status: done
latency_ms: 208637
conversation_id: d1f70d3c-3497-4602-8538-fefee48acffd
citations: 0
created: 2026-05-31 19:47:03Z
---

# Is CLSA incrementally more positive/negative on ITC. If so, why?

## CLSA's stance on ITC — incrementally more cautious, rating intact

**Bottom line:** CLSA is **incrementally less positive (more cautious)** on ITC over the last two earnings cycles, while keeping the **Outperform** rating in place. The cautious lean is reflected in repeated target-price cuts, earnings estimate downgrades, and ITC being notably **excluded from CLSA's "top picks" list** in the June-2025 India consumer 4Q review. CLSA's analyst language remains constructive on the structural thesis ("We remain positive on ITC, especially with cigarette growth picking up. We will watch closely for a recovery in FMCG margins") [1].

> **Corpus-recency caveat:** The latest CLSA ITC note in our RMS archive is dated **22-May-2025** (the FY25 4Q results review). CLSA's coverage post-May 2025 is not synced in the archive, so "incremental" here means May-2025 vs prior 12 months — not real-time.

---

### Trajectory of ratings / TP / EPS — the direction is clearly down

| Note (date) | Title | Rating | TP (Rs) | Δ TP | Estimate action |
|---|---|---|---|---|---|
| 7-Feb-2025 [9] | "Miss: Weaker margins" (3QFY25) | O-PF | **500** | Rs540 → 500 (-7.4%) | FY25-27 net profit cut **6–8%** |
| 20-Apr-2025 [8] | "Bolstering FMCG" (Sresta / Mother Sparsh acquisitions) | O-PF | **518** | 500 → 518 (+3.6%) | Marked up on FMCG M&A optionality |
| **22-May-2025** [2][3] | **"In-line sales & slightly weak margins" (4QFY25)** | **O-PF** | **496** | 518 → 496 (-4.2%) | FY26-27CL EPS cut **4%** |

The net 12-month trajectory: TP has gone **Rs540 → Rs500 → Rs518 → Rs496** — a cumulative ~8% reduction, with **two earnings-driven downgrades** sandwiching one brief uplift on an M&A announcement. As of the May-22 note, implied upside is **+16%** vs +21% from the April note [13][8].

---

### Why CLSA turned more cautious — the 4QFY25 result was the trigger

The May-22 note keeps the structural bull thesis but flags multiple **margin-pressure points** that justified the EPS and TP cut:

**1. Cigarette margins compressed despite strong volumes**
- Cigarettes revenue **+6% YoY**, mostly volume-led with flattish pricing [6]
- **Segmental EBIT margin -204bps YoY**, driving an EBIT miss of 2%/6% vs CLSA/consensus [2]
- Specifically: cigarette EBIT margin **-120bps YoY** due to **sharp leaf tobacco cost escalation** [4]
- The base case (cigarettes as the "stable, share-gain" earnings engine) remains intact but is being delivered at lower profitability than modeled

**2. FMCG — the most worrying delta**
- FMCG revenue grew only **3.7% YoY**, missing CLSA/consensus by 1%/4% [6]
- **FMCG profit declined 27% YoY** — the *second consecutive quarter of decline* and "below recent trends" [5]
- FMCG EBIT margin **-273bps YoY**, hit by severe agri-commodity inflation, intensifying competition, and sustained trade/marketing investments [4][5]
- CLSA explicitly highlights this as a thesis risk: *"improving FMCG margins have been a key driver of ITC's valuation"* [5]

**3. Paper segment hammered by external pressures**
- Paperboards margin **-491bps YoY**, hit by a **surge in domestic wood costs** and **low-priced Chinese supply** [4][10]

**4. Offset (limited): Agribusiness**
- Agri revenue **+18% YoY**, beneficiary of leaf tobacco / value-added agri and nicotine export ramp from FY26 [6][4]

Net effect on the model: revenue cut **-0.6% / -0.7%** for FY26/27, but EBITDA margin cut **-140bps in both years**, dropping FY26-27CL net profit by **~3.9%** each [2].

---

### The "incremental" signal is also visible in CLSA's sector ranking

In CLSA's **5-Jun-2025 India consumer 4Q sector review** ("eroding moat(s)?"), the top-picks list explicitly named **Eternal, Swiggy, DMart, Varun Beverages, Britannia and Nestle** as O-PF top picks — **ITC was conspicuously absent** despite carrying the same O-PF tag [11][12]. ITC continued to be rated O-PF with TP Rs496 and +19% upside [12], but the relative ranking signal is meaningful: when a name slips from top-pick status while keeping the rating, it is a *softer* form of incremental caution.

CLSA's preference order in the same review was "**retail and discretionary over staples, and within staples F&B over HPC**" [11] — a framework where ITC (multi-segment with cigarettes, F&B, paper, agri) is not the natural top-pick relative to pure F&B names like Britannia and Nestle.

---

### What CLSA is **still positive on** (why the rating stays O-PF)

- **Cigarette volume momentum picking up** (4% in 4QFY25, with 5% estimated for FY26) — share gains from illicit segment continue [1][7]
- **Stable tax regime** assumed in the SOTP (cigarettes valued at 20x PE) — the budget left tobacco taxes unchanged [7]
- **Hotels demerger** seen as a positive structural step: "assures investors that the company is increasingly looking at capital allocation and unlocking value" [7]
- **FMCG M&A optionality** — the April-2025 Sresta (24 Mantra Organic) and Mother Sparsh acquisitions bolster the FMCG portfolio
- **Long-run consumption thesis** intact via 25-year DCF at 11.9% WACC and 4% terminal

---

### Synthesis: incrementally more cautious

CLSA's incremental view on ITC has **softened**, driven primarily by FMCG margin disappointment and cost inflation in both cigarettes and paper. The signals point in one direction:

1. **Two EPS estimate cuts in three quarters** (Feb -7%/-6%/-8%; May -4%/-4%) [9][2]
2. **TP net down ~8%** over the cycle (540 → 496) [9][3]
3. **Dropped out of CLSA's top consumer picks** in the June 2025 sector review [11]
4. **Analyst tone shifted** from "Bolstering FMCG" (April, constructive) to "In-line sales & slightly weak margins" + repeated "we will watch closely for a recovery in FMCG margins" hedge language [1][2]

That said, the de-rating is **incremental, not directional** — ITC stays O-PF, the cigarette thesis is intact, and CLSA still sees +16% upside [13]. The framing is best described as "**positive but watching margins**" rather than a thesis change.

---
**Sources**
[1] CLSA — ITC O-PF (In-line sales & slightly weak margins), 22-May-2025 — 607960308LinqAlpha.PDF
[2] CLSA — ITC O-PF (In-line sales & slightly weak margins), 22-May-2025 — 607960308LinqAlpha.PDF
[3] CLSA — ITC O-PF (In-line sales & slightly weak margins), 22-May-2025 — 607960308LinqAlpha.PDF
[4] CLSA — ITC O-PF (In-line sales & slightly weak margins), 22-May-2025 — 607960308LinqAlpha.PDF
[5] CLSA — ITC O-PF (In-line sales & slightly weak margins), 22-May-2025 — 607960308LinqAlpha.PDF
[6] CLSA — ITC O-PF (In-line sales & slightly weak margins), 22-May-2025 — 607960308LinqAlpha.PDF
[7] CLSA — ITC O-PF (In-line sales & slightly weak margins), 22-May-2025 — 607960308LinqAlpha.PDF
[8] CLSA — ITC O-PF (Bolstering FMCG), 20-Apr-2025 — 607956322LinqAlpha.PDF
[9] CLSA — ITC O-PF (Miss: Weaker margins), 7-Feb-2025 — 607949950LinqAlpha.PDF
[10] CLSA — ITC O-PF (Miss: Weaker margins), 7-Feb-2025 — 607949950LinqAlpha.PDF
[11] CLSA — India consumer (4Q review: eroding moat(s)?), 5-Jun-2025 — 607961234LinqAlpha.PDF
[12] CLSA — India consumer (4Q review: eroding moat(s)?), 5-Jun-2025 — 607961234LinqAlpha.PDF
[13] CLSA — ITC O-PF (In-line sales & slightly weak margins), 22-May-2025 — 607960308LinqAlpha.PDF

