ITC Q4 Review - FMCG, Hotel Divisions Drive The Beat; Cigarette Volume Trajectory Remains Healthy: Systematix

Systematix Research Report

ITC Ltd.’s overall Q4FY23 revenue/Ebitda/profit after tax growth of 5.6%/18.9%/19.6%, respectively, was ahead of our estimates, with better-than-expected growth and best-ever margins in the fast moving consumer good and hotels segments.

Soft margins in cigarettes and paper limited the YoY margin improvement to 430 basis points, which was down 50 bps QQ. Key highlights:

1. Cigarette volume/Ebit growth of ~12%/14% (4.1% four-year volume compound annual growth rate) demonstrates a claw back of market share from illicit industry given stable taxation regime backed by deterrent government actions driving improved volume growth trajectory,

2. FMCG grew at a solid 19.4%, led by growth in foods and discretionary/out-of-home categories, with 445 bps margin expansion led by premiumisation, supply chain agility and strategic cost management,

3. hotels business continued a strong rebound, generating 100% YoY revenue growth with sharp swing in margins led by higher average room rate, occupancy and cost interventions,

4. agri business declined 18%, due to export restrictions on wheat imposed by the Government,

5. paper segment revenue was up mere 1.8% due to planned shutdown of mill and high base with margins down by 60 bps and,

6. ITC Infotech posted revenue growth of 30% with Ebitda growth of 33%.

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