Q4FY23 Review: ITC: On a strong footing

19 May 2023 , 10:50 AM

ITC delivered a largely in-line performance, with Cigarettes business posting a growth of 14%YoY (marginal miss vs analysts of IIFL Capital Services estimates) in the standalone business, driven by a volume growth of 12%. FMCG-Others registered robust growth of 19% (marginal beat), driven by higher growth in Staples, Biscuits, Snacks, Agarbatti, etc. Cigarette business is expected to post high-single-digit revenue growth, driven by mid-single digit volume growth and pricing actions in the medium term.

In-line performance: 

Cigarette business grew by 12.6%YoY (vs analysts of IIFL Capital Services estimate of 16.4%). FMCG-others revenue grew 19.3% YoY with Ebit margin expansion of 443bps led by premiumisation, pricing actions and PLI benefits. Agri business revenue declined 17.6%YoY led by restrictions in the wheat and rice exports; but Ebit margin saw sharp recovery of 286bps YoY to 8.4%. Higher base and muted demand in global markets led to revenue growth remaining muted in Q4.

Cigarette volumes remain strong: 

On standalone basis, Cigarette business grew by 14.2%YoY driven by volume growth of 12%YoY and premiumisation. Volumes growth came in strong on an Omicron impacted lower base. With the marginal increase in taxation announced in the Union budget 2023-24, analysts of IIFL Capital Services expect Cigarette volume growth to be in mid-single digit in near term. The company has already taken marginal price increase in its premium end of the portfolio in Q1; they expect further price hikes in coming months to offset the impact of tax increase.

Maintain BUY: 

Recent stability in taxes has enabled volume growth for the legal Cigarette industry. Analysts of IIFL Capital Services expect the Cigarette business margins to improve in near term with the recent price hikes taken. They largely maintain their estimates for FY24/FY25 and forecast a revenue/Ebitda/PAT Cagr of 8.6%/10.4%/10.2% over FY23-26. Maintain BUY with a TP of Rs 450.