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ITC Q4FY22 Review - Cigarette volume, FMCG price growth, agri exports to drive revenue growth

ICICI Securities 19 May 2022

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.

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