Q3FY24 Review: ITC: A poor performance

30 Jan 2024 , 07:54 PM

ITC reported Q3FY24 results which were below analysts of IIFL Capital Services estimates. The consolidated sales grew by 2.3% (IIFLe ~6%) with Cigarette segment reporting a 2.6% sales growth and Agri/Paperboards business reporting sales decline of 1%/10% respectively. The Ebitda fell by 3% (IIFLe: flat) and the margin contracted by 184bps (in line with their estimate). Analysts of IIFL Capital Services had highlighted in their quirks that Cigarette growth is likely to slow down due to unfavourable base. Although, the slowdown is more than expected, this might be due to possible trade up-stocking in Q3FY23 in anticipation of the Union budget (vs. vote on account budget this time). Analysts of IIFL Capital Services upgrade their EPS estimate for FY24 by 1% on the back of low effective tax rate for Q3FY24 (19% vs 23.4% for M9FY24) and maintain their EPS estimate for FY25/26. Maintain BUY, TP Rs510. 

Miss on estimates:

The consolidated sales reported a 2.3% growth (IIFLe ~6%), largely led by a miss in Cigarette (2% growth vs IIFLe 6.5%) with volumes declining low single digit. The Ebitda declined by 3% (IIFLe: flat) and the Ebitda margin contracted by 184bps. The Cigarette Ebit margin came in at ~60% and was broadly in line with analysts of IIFL Capital Services estimate, however the margins for Paperboard/Agri segment declined by ~1200bps/~160bps to 14.2%/11.6% respectively. Hotels reported a strong quarter with 18% sales growth (IIFLe 8%) and Ebit margin of 26.8% (IIFLe 26.3%). 

Cigarettes growth moderates: 

Analysts of IIFL Capital Services had highlighted that the Cigarette sales is expected to slowdown due to unfavourable base effect. However, the slowdown has been more than expected and this might be due to a possible trade up-stocking in the base period in anticipation of the Union Budget vs. a vote on account budget this time. Analysts of IIFL Capital Services estimate Cigarette sales to grow by ~4% in Q4FY24. 

Maintain BUY: 

Analysts of IIFL Capital Services downgrade their sales estimate for FY24/25/26 by ~1.5% on the back of a these results. With effective tax rate for Q3FY24 being lower (19% vs 23.4% for M9FY24), analysts of IIFL Capital Services upgrade their EPS estimate for FY24 by 1% and maintain EPS estimate for FY25/26.