ITC Q3 Results Review - Another Quarter Of Positive Surprise On Cigarette Volumes, FMCG: Systematix

Systematix Research Report

ITC Ltd.’s overall Q3 FY23 revenue/Ebitda/profit after tax growth of 2.3%/22%/21%, respectively, was ahead of our and consensus estimates, with significantly better-than-expected growth across segments especially cigarettes and fast moving consumer goods, partially offset by lower agri-business revenue. Superior segment mix led to a sharp margin improvement. Key highlights-

1. cigarette volume/Ebit growth of 15%/17% demonstrates a claw back of market share from illicit industry given stable taxation regime backed by deterrent government actions driving improved volume growth trajectory coupled with improved profitability led by superior mix,

2. fmcg grew at a solid 18.4% (three- year compound annual growth rate of 13.5%), led by growth in foods and discretionary/out-of-home categories, with 128 basis points margin expansion with easing of raw material inflation,

3. hotels business continued a strong rebound, generating 50.5% YoY revenue growth (8.9% three-year CAGR) with sharp swing in margins led by higher average room rate, occupancy and cost interventions,

4. agri business declined 37.1% (14.2% three-year CAGR), due to export restrictions on wheat and rice imposed by government,

5. paper segment revenue was up 12.7% (14% three-year CAGR) with 438 bps margin expansion led by better product mix and proactive strategic investments, and,

6. ITC Infotech posted revenue of Rs 8,720 million, with Ebitda margin at 19%.

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