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Motilal Oswal Report
ITC Ltd. reported higher-than-expected sales growth mainly due to better-than expected agriculture business resilience in Q1 FY21.
However, Ebitda and profit after tax were disappointing due to (a) estimated 37% cigarette volume decline, (b) far lower contribution of the highly profitable cigarette business to total sales (32% in Q1 FY21 versus usual levels of approximately 40%), and (c) massive losses in the hospitality business (approximately 8% negative impact on Ebitda in Q1 FY21 versus 1% usual positive contribution).
Our channel checks indicate that cigarette volumes are close to pre-Covid-19 levels. However, re-imposition of lockdowns in a few states could have some negative effect.
Nevertheless, it is unlikely for the weak mix in Q1 FY21 (low cigarette proportion to total sales) to be repeated, and impact on margins to be as sharp as in Q1 FY21.
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