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Centrum Broking Report
ITC Ltd.'s Q2 FY24 print was tad lower to our estimates; standalone revenue/Ebitda/profit after tax grew by 2.8%/3.7%/9.3%. With stable taxation, and cut in illicit trade, despite high base cigarette net sales/volume /Ebit grew 8.5%/4%/8.0%.
Fast moving consumer goods revenue/Ebit grew robust at 8.3%/36.8%, led by-
~2% volume growth,
amid subdued consumer demand atta, spices, soaps grew faster followed to classmate notebooks,
scale up in rural distributors three times, and
rapid growth in modern trade/e-commerce/quick commerce.
Hotels revenue/Ebit grew 21.2%/49.8%, yet revenues for agriculture/ paper declined by 1.7%/9.5% (e.g. wheat exports +26.4%).
Gross Margins remained flat at 56.9% (+43 basis points) YoY, yet lower by 216 bp QoQ due to higher input prices for cigarette business and incremental sales from leaf tobacco. Ebitda margin at 35.9% (+29 bp), driven by healthy price-mix in fmcg, margin recovery in hotels, and better mix led by value add agri and leaf tobacco.
We argued in our thematic report that, with strong operating leverage and improved product-mix fmcg segment to deliver 12.9% Ebitda margin (March- 24).
We introduce FY26E and retain 'Buy' with a revised discounted cash flow-based target price of Rs 574 (implying 28.4 average FY25E/FY26E earning per share). Robust performance in fmcg, yet lower exports cut agri revenues and high base in paper.
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