ITC Ltd.'s quarter-one results beat the street expectations, aided by growth in its cigarette, hotel, and fast-moving consumer goods businesses.
“ ITC’s Q1FY2024 numbers beat ours as well as the street’s expectation mainly as OPM (operating profit margins) came in higher than estimates,” analysts from Sharekhan said.
“We have fine-tuned our earnings estimates for FY2024 and FY2025 to factor in higher-than-expected operating margins due to lower input prices, efficiencies and a better mix,” added the broker, maintaining a BUY status on ITC’s stocks.
The company’s mainstay cigarettes segment — which accounts for about 13.0% of its revenue — continued its strong momentum. Volumes, or the number of cigarettes sold by the company, rose 8% compared to a year ago.
With input costs under control, net profit at India’s largest cigarette maker increased 13.0% Y-o-Y to Rs 7,465 crore.
Analysts from Centrum said the cigarettes business benefited from a stronger product portfolio, innovation, and better execution. They also added that legal cigarettes constitute just 8% of the total tobacco consumption, giving the company plenty of room for growth.
Analysts from Axis, who also have a BUY rating on the stock, also welcomed the company’s robust performance in Q1. They pointed out that there was sustained volume recovery from illicit cigarette trade due to stability in cigarette taxes and deterrent actions by enforcement agencies.
They also pointed out that the company’s FMCG business — which contributes about 16.1% of the company’s total revenue — has reached critical mass.
Revenue from the FMCG business grew 16% to Rs 5,172.7 crore driven by staples, biscuits, noodles, and cool drinks. It crossed the Rs 5,000-crore mark in a quarter for the first time.
“FMCG business has reached the inflexion point as EBIT margins continue to increase, driven by – the ramp-up in the outlet coverage, effective implementation of localization strategy, premiumization, use of demand and supply side technologies, and moderating raw material input cost,” the Axis analysts noted.
The analysts believe that the ITC’s overall performance would continue to strengthen as all its businesses are on track.
Even as ITC portrayed a strong growth in EBITDA and PAT, its quarterly revenue was down 7% at Rs 16,995 crore, mainly due to the hits in agricultural and paperboard businesses.
The government imposed a ban on the export of agricultural commodities, including wheat and non-basmati rice, which resulted in lower business opportunities for the company’s agribusiness this quarter.
Because of this, ITC's revenue from agribusiness fell 24% year-on-year to Rs 5,727 crore. Excluding wheat exports, however, revenue from agribusiness grew 31% over the previous year, according to the company.
“The company’s agri-business is a pioneer in rural transformation and one of the country’s largest businesses in the agri-value chain,” noted Centrum.
Hotel business revenue came in at Rs 600 crore, up 8.1% from the previous year. The company recently announced that it will spin off its hotel business into a new venture.
Going forward, hotel businesses would be paying a royalty for use of the ITC name and expertise and the company would continue to work with the hotels for cross-segment businesses.
“The demerger of hotels is a positive move, said analysts from Antique’s Morning Presentation. “We believe the demerger of ITC’s hotel business is a positive move and would benefit the company and shareholders over the long term.
“We remain positive on ITC’s performance driven by the momentum in cigarette market share gain on superior execution supported by strong momentum in other businesses of FMCG and Paper,” they added.
In the hotel business, the company saw growth in average room rates across its properties, though occupancy moderated on a high base due to relatively fewer wedding dates during the quarter and pre-planned renovations.
ITC added six hotels to its sprawling portfolio, including Welcomhotel Hamsa Manali and Storii Moira Riviera, a boutique resort in North Goa.
Revenue from paperboards, paper and packaging fell 6.5% to Rs 2,121 crore. Subdued demand in domestic and export markets, low-priced Chinese supplies and reduction in global pulp prices along with a high base effect weighed on performance.