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ITC Q3FY25 – cigarette volume growth ~6%;

ICICIdirect Research 07 Feb 2025 DISCLAIMER

ITC reported Q3FY25 financials excluding the discontinued hotel business. Its net revenues grew by 8.6% yoy to Rs17052.8 cr driven by 8.1% yoy growth in the cigarette business revenues and 10% growth in the agribusiness revenues. 

Cigarette business volume growth stood at ~6% vs. the street expectation of 3-3.5% for the quarter. Non-cigarette FMCG business revenues grew by 4%yoy to Rs 5418.2crore (lower than street expectation of 6-7%).

Gross margins decreased by 237bps yoy to 54.4% while EBIDTA margins decreased by 239 bps yoy to 34.2%. FMCG business EBIDTA margins was down by 243bps to 8.5% led by sharp input cost inflation during the quarter. Cigarette business and PPP business EBIT margins were also down by 211bps and 464bps in Q3. Agri business performed well with 10% revenue growth on back of better leaf tobacco exports.

ITC acquires 43.8% stake in frozen foods prasuma, plans full takeover by 2027. Considering the deal value of Rs299crore, the valuation stands 1.5x revenues and is reasonable.

ITC cigarette business volume growth stood at ~6% in Q3FY25 better than 3% volume growth in Q2FY25. With no increase in tax rate on the cigarette in the Union budget, we expect volume growth momentum in the cigarette business to continue. We expect margins to remain under pressure in the near term and might gradually recover from Q1/Q2FY26 once commodity inflation stabilises.

The stock continues to trade at discounted valuation of 25x its FY26E EPS of Rs17.6 and 22x its FY27E EPS of Rs19.2

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