ITC Q1 Results Review - Inline Sales; Margins Surprise Positively: Nirmal Bang

Nirmal Bang Report

Key Points

• ITC Ltd. reported in-line sales and gross profit for Q1 FY24 but lower-than expected other expenses led to a beat on Ebitda and profit after tax, with Ebitda margin coming in at 39.5% - the third highest for any quarter since Q2 FY05.

• Cigarette volume growth likely came in at ~8% YoY for Q1 FY24 (four-year compound annual growth rate of ~3%), slightly lower than our expectation of 9%.

• We believe that earnings CAGR during FY23-FY25E is likely to be ~12%. Riding on the back of earnings per share CAGR of ~11% over the preceding four years, ITC’s net profit growth does seem to have turned the corner after the struggles of the past.

• We view the value unlocking from the Hotel business demerger as a welcome move, especially if it is eventually followed by the demerger of the other fmcg and IT services businesses as well. If the same fructifies, re-rating will be sharper going forward. Maintain 'Buy'.

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