ITC Ltd. Upgraded to Hold by MarketsMOJO on Improved Valuation and Financial Metrics

Valuation Upgrade Spurs Rating Change

The primary catalyst for ITC’s rating upgrade is the shift in its valuation grade from fair to attractive. The company currently trades at a price-to-earnings (PE) ratio of 16.26, which is reasonable given its sector and historical context. Its enterprise value to EBITDA (EV/EBITDA) stands at 13.94, while the price-to-book (P/B) ratio is 5.53, signalling a premium but justified valuation given the company’s robust return metrics.

Further supporting the attractive valuation thesis is ITC’s PEG ratio of 0.73, indicating that the stock is undervalued relative to its earnings growth potential. The dividend yield remains healthy at 4.14%, offering investors a steady income stream amid market volatility. These valuation improvements have been pivotal in moving the Mojo Grade from Sell to Hold, with a current Mojo Score of 51.0.

Quality Metrics Remain Strong

ITC’s quality parameters continue to impress, underpinning the Hold rating. The company boasts a latest return on capital employed (ROCE) of 46.73% and a return on equity (ROE) of 33.44%, both indicative of efficient capital utilisation and strong profitability. These figures are consistent with ITC’s long-term average ROE of 27.82%, reflecting sustained operational excellence.

Moreover, ITC maintains a low debt-to-equity ratio averaging zero, highlighting a conservative capital structure that mitigates financial risk. This prudent financial management supports the company’s resilience in a competitive FMCG landscape and justifies the positive quality assessment despite recent flat quarterly results.

Financial Trend: Mixed Signals Amid Flat Quarterly Performance

While ITC’s long-term fundamentals remain robust, recent financial trends have been less encouraging. The company reported flat financial performance in Q3 FY25-26, with no significant growth in net sales or profits during the quarter. This stagnation is reflected in the debtors turnover ratio, which is at a low 12.97 times for the half-year period, signalling potential inefficiencies in receivables management.

Despite this, ITC’s net sales have grown at an annualised rate of 10.97% over the long term, and profits have increased by 22.5% over the past year. However, the stock’s price performance has lagged considerably, delivering a negative return of -31.10% over the last 12 months, underperforming the Sensex’s 6.66% gain and the BSE500 index over multiple time horizons.

This divergence between earnings growth and share price performance suggests market concerns over near-term challenges, yet the underlying financial health remains intact, supporting a Hold stance rather than a downgrade.

Technical Assessment and Market Sentiment

Technically, ITC’s stock price has shown weakness, closing at ₹313.85 on 5 February 2026, down 0.90% from the previous close of ₹316.70. The stock is trading near its 52-week low of ₹302.00, far below its 52-week high of ₹465.20, reflecting significant market pressure.

Short-term technical indicators suggest cautious sentiment, with the stock underperforming the Sensex and broader FMCG peers. However, the high institutional holding of 85.04% indicates confidence from sophisticated investors who have the resources to analyse the company’s fundamentals deeply. This institutional backing provides a stabilising influence on the stock price and supports the revised Hold rating.

Balancing Strengths and Risks

ITC’s upgrade to Hold reflects a balanced view of its investment prospects. On the positive side, the company’s attractive valuation, strong returns on equity and capital employed, low leverage, and healthy dividend yield present a compelling case for investors seeking steady income and capital preservation.

Conversely, the flat recent financial results, subdued stock price performance, and technical weakness caution against a more bullish stance. The stock’s premium valuation relative to peers and historical averages also warrants careful monitoring, especially if earnings growth slows or market conditions deteriorate.

Conclusion: A Cautious Hold with Long-Term Potential

In summary, ITC Ltd.’s investment rating upgrade to Hold is underpinned by an attractive valuation profile, strong quality metrics, and solid long-term fundamentals despite recent flat financial results and technical headwinds. The company’s ability to generate high returns on equity and capital employed, combined with a low debt burden and a generous dividend yield, makes it a viable option for investors seeking stability in the FMCG sector.

However, investors should remain mindful of the stock’s recent underperformance relative to benchmarks and the potential risks posed by flat near-term earnings growth. The Hold rating reflects this balanced outlook, suggesting that while ITC is not currently a Buy, it remains a credible holding for those with a medium to long-term investment horizon.

MarketsMOJO’s comprehensive analysis, including the Mojo Score of 51.0 and the upgraded Mojo Grade of Hold, provides investors with a nuanced view of ITC’s prospects, integrating valuation, quality, financial trends, and technical factors into a single actionable recommendation.

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