ITC Q3 Results Review - Miss On Cigarette Volume; Resilient FMCG Delivery: Motilal Oswal

Motilal Oswal Report

ITC Ltd.’s revenue growth of 1.6% in Q3 FY24 came in significantly below our estimate of 5.7% growth, as cigarette volume declined 1-2% YoY (estiamte: 2% growth) on a high base of 15% growth in Q3 FY23. The four-year volume compound annual growth rate stood at 5%. The premium cigarette segment continued to outperform, while the value segment saw weakness.

The performance of other fmct segments remained resilient, with 7.3% revenue growth. The contribution of digital and modern trade businesses was significant at 31% of revenue.

Despite rising competitive pressure (local, regional players) and weak demand, ITC sustained Ebitda margin expansion.

The agri business continued to be impacted by government restrictions. The paper segment is facing challenges, including demand issues, competition from China, lower pulp prices, and higher input costs, although signs of a sectoral revival are emerging.

The hotel segment posted a robust performance, with strong growth in the average room rate and occupancy.

We retain our 'Buy' rating on ITC as we believe its earnings visibility remains better than that of peers. Our target price of Rs 515 is based on SoTP valuations.

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