PL Stock Report: ITC (ITC IN) - Q1FY24 Result Update - Cigarette and FMCG business lead growth - Accumulate

ITC (ITC IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs449 | TP: Rs478

Q1FY24 Result Update - Cigarette and FMCG business lead growth

Quick Pointers:

§ Cig volumes up ~9.8%, FMCG sales grow 16.1% with margins up 376bps YoY

§ Hotel outlook remains strong with higher ARR and occupancy outlook

ITC reported another quarter of strong growth across segments. Cigarette volume growth for 1Q was ~9.8% supported by stability in taxes, and volume recovery from illicit trade. Outlook remains positive although we expect growth to moderate to mid-single digits in medium term. FMCG growth was ahead of industry and margins got a boost due to improving scale, lower raw material costs and PLI incentives, we expect calibrated margin expansion to sustain in coming years. Hotel outlook is positive (despite planned renovations) due to G20 and revival in business & foreign tourist travel. Paper and Paperboard segment has started showing QoQ margin expansion and margins are expected to sustain around current levels. ITC has announced swap ratio of 1:10 for ITC Hotels demerger which is likely to be completed over next 15 months, it will improve ROCE and cash flows.

Near term outlook remains strong, we estimate 10.7% EPS CAGR over FY23-25. ITC trades at 25.3x FY25 EPS with ROE/ROCE of 30%+/35%+ and ~80%+ dividend payout. Retain Accumulate.

1Q PAT up 17.6%: Revenues declined by 8.5% YoY to Rs158.3bn (PLe: Rs169.4bn). EBITDA grew by 10.7% YoY to Rs62.5bn (PLe: Rs 61.0bn); Margins expanded by 682bps YoY/162bps QoQ to 39.5% (PLe:36.0%). Adj PAT grew by 17.6% YoY to Rs49bn (PLe: Rs47.2bn).

1QFY24 Segment Wise Performance

§ Cigarette Revenues grew by 13% YoY to Rs74.7bn; EBIT grew by 11% YoY to 46.6bn. Margins contracted by 101bps YoY/138bps QoQ to 62.4%. Cigarettes volume growth of 9.8% (PLe: 9.0%).

§ FMCG Revenues grew by 16.1% YoY to Rs51.7bn; EBIT grew by 111% YoY to 4.3bn. Margins expanded by 376bps YoY but contracted 180bps QoQ to 8.3%.

§ Hotel Revenues grew by 8.1% YoY to Rs6bn; EBIT grew by 17% YoY to 1.3bn. Margins expanded 165bps YoY but contracted 367bps QoQ to 21.9%.

§ Agri Revenues declined by 23.7% YoY to Rs57.1bn; EBIT grew by 25% YoY to 3.6bn. Margins expand by 244bps YoY but contracted 234bps QoQ to 6.2%.

§ Paperboard & Paper Revenues declined by 6.5% YoY to Rs21.2bn; EBIT declined by 23% YoY to 4.7bn. Margins contracted by 476bps YoY but expanded by 224bps QoQ to 22.3%.

§ ITC Infotech Revenues grew 11.6% YoY to Rs8.4bn; EBITDA declined 4.2% YoY to 1.1bn. Margins contracted 224bps YoY/441bps QoQ to 13.6%.

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