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ITC Q4FY22 Review - Cigarette volume, FMCG price growth, agri exports to drive revenue growth
What’s Buzzing
ITC witnessed strong revenue growth of 16% to Rs 16426 crore on the back of 10% growth in cigarettes, 31.8% growth in paperboard, 29.6% growth in agri & 12.3% growth in the FMCG businesses. Cigarette volume growth was ~9% during the quarter. The segment saw 128 bps improvement in cigarette segment margins. FMCG sales growth of 12.3% was led by strong growth in the education & stationary segment due to reopening of schools, sustainable growth in staples and high growth in discretionary categories. FMCG growth was led by a mix of volumes, pricing growth and product mix enhancement.
Context
We expect cigarette volumes, price growth in FMCG business and strong agri exports to drive revenues for the company in future. The company has been gaining market share in cigarettes in the last one year through new premium products and aggressive trade promotions. Opportunity size of existing foods portfolio is large, which supports long term growth prospects. Recent spurt in global wheat prices would continue to drive agri business growth.
Our Perspective
ITC has seen a strong recovery across segments from two years of disruption from Covid. Despite huge commodity inflation, the company has been able to improve its FMCG segment margins in the quarter & FY22. We believe ITC is least impacted by commodity inflation given its raw material consists larger proportion of wheat & other agri commodities, which have seen relative less volatility compared to crude & palm oil derivatives. The company has generated strong Rs 13000 crore free cash flow in FY22 while dividend payout is close to 90%. Stable taxation on cigarettes and its strategy of improving FMCG business segment margins is expected to work well.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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