Q3FY23 Review: ITC: Robust volume growth continues

6 Feb 2023 , 11:10 AM

ITC delivered robust operating performance, with Cigarettes business posting 16.1% YoY revenue growth (vs our estimate of 12%). On a 3yr Cagr basis, Cigarette volume growth accelerated further from 5.4% in Q2 to 6.4% in Q3. FMCG-others registered a growth of 18.3%YoY, driven by higher growth in staples, biscuits, noodles, etc. Cigarette business grew 16.1%YoY (vs our estimate of 12%), driven by volume growth of 15%YoY. FMCG-others revenue grew 18.3% YoY (in line with our estimates) led by higher growth in staples, biscuits, noodles, etc. Agri-business revenue declined 35.9%YoY, led by restrictions in the wheat and rice exports; but Ebit margin saw sharp recovery of 645bps YoY to 13.2% driven by growth in leaf tobacco exports and value-added products.

With marginal tax increase, analysts at IIFL Capital Services expect Cigarette volume growth to be robust in medium term. They upgrade their EPS estimates by 4% for FY23 and 3% for FY24 & FY25, due to strongerthan-expected volume growth in Cigarette business. They forecast revenue/Ebitda/ PAT Cagr of 7.4%/10.1%/9.6% over FY23-25.

With marginal increase in taxation was announced in the Union Budget 2023-24, analysts of IIFL Capital Services expect Cigarette volume growth to be in mid-single digits in medium term. Also, strong demand environment would provide ITC an opportunity to improve its portfolio mix through premiumisation.

Analysts of IIFL Capital Services maintain BUY rating with a target price of Rs425.