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ITC Ltd>
  • CMP : 265.9 Chg : 0.35 (0.13%)
  • Target : 310.0
  • Target Period : 12 Month

19 May 2022

Strong growth across businesses…

ITC is biggest cigarettes & second largest FMCG company in India with ~78% of market share in cigarettes & presence in staples, biscuits, noodles, snacks, chocolate, dairy products & personal care products. The company is also present in paperboard, printing & packaging business & agri exports businesses.

  • The company has more than 200 manufacturing facilities in India. It has a distribution reach of over 6 million retail outlets across various trade channels & strong 25 brands across various categories

ITC reported strong results with ~9% cigarette volume growth.

  • Sales were up 16% YoY, driven by strong growth across segments
  • EBITDA was at Rs 5224 crore, up 16.8% YoY, with margins at 31.8%
  • Consequent PAT was at Rs 4191 crore (up 11.8% YoY)

ITC’s share price has underperformed the FMCG index with negative 6.8% return (from Rs 286 in May 2017 to 267 in May 2022).

  • We expect cigarette volumes, price growth in FMCG business & strong agri exports to drive revenues for the company in future
  • We upgrade our rating from HOLD to BUY

We value the stock at Rs 310 on SOTP basis valuing cigarettes business 15x FY24 earnings & FMCG business 6x FY24 sales

  • Stable taxation on cigarettes is expected to drive volumes, going forward. Moreover, the company has been gaining market share in cigarettes from last one year through new premium products & aggrieve trade promotions
  • FMCG business growing at a sustained pace with continuous improvement in margins in last five years. Opportunity size of existing foods portfolio is large. Given agri commodities constitutes larger part of raw material, input cost pressures is relatively less for the company
  • The company is utilising export opportunity in wheat, rice & tobacco in last one year. Recent spurt in global agri prices is likely to aid growth

We also like Dabur in our FMCG coverage.

  • Significant shift in consumption towards healthier, natural & Ayurveda based products & aggressively foray in many big categories would be driving growth for Dabur
  • Value the business at 55x FY24 earnings. BUY with a TP of Rs 680

Key Financial Summary

Key Financials FY20 FY21 FY22 5 Year CAGR (FY17-22E) (%) FY23E FY24E (Blank) CAGR (FY22-24E)
Net Sales 46,323.7 48,151.2 59,101.1 8.3 64,037.2 70,461.6 - 9.2
EBITDA 17,904.3 15,522.5 18,933.7 5.4 22,203.8 24,954.8 - 14.8
EBITDA Margin % 38.7 32.2 32.0 - 34.7 35.4 - -
Net Profit 15,136.1 13,031.6 15,057.8 8.1 17,021.9 18,806.3 - 11.8
EPS (Rs) 12.5 10.7 12.4 8.1 14.0 15.5 - 11.8
P/E 21.4 24.8 21.5 - 19.0 17.2 - -
RoNW % 23.8 22.1 24.5 - 26.7 28.1 - -
RoCE (%) 29.4 28.2 31.4 - 34.9 36.6 - -
Source: Company, ICICI Direct Research

Q4FY22 Results: Cigarette volume, FMCG price growth & agri exports to drive revenue growth

  • Revenue witnessed 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 FMCG businesses. Hotels business also saw strong recovery with 35.4% growth. However, it still remains lower than pre-Covid revenues. There was some impact of Covid-19 third wave on hotel business during the quarter
  • Cigarettes volume growth was ~9% during the quarter. The company is gaining market share through aggrieve trade promotions. It saw 128 bps improvement in cigarette segment margins. Cigarettes volumes are higher than pre-Covid numbers. New product launches are gaining traction & supporting volume growth
  • FMCG sales growth of 12.3% was led by strong growth in education & stationary segment due to re-opening of schools, sustainable growth in staples and high growth in discretionary categories. Though hygiene portfolio (Savlon) sales came down from the peak, it still remains significantly higher than pre-Covid numbers. FMCG growth is led by mix of volumes, pricing growth & product mix enhancement
  • EBITDA margin for the FMCG segment was up by 75 bps to 9% despite huge pressure on commodity inflation. The company was also able to maintain full year margins at 9% (up 10 bps) despite incessant commodity inflation & lower sales of high margin stationary business sales in earlier quarters
  • The company is scaling up its D2C business with ITCstore.in. It is present in 15 cities with 700 new products in more than 45 categories. In last few quarters ITC has acquired minority stake in D2C brands like ‘Mother Sparsh’ & ‘Mylo’
  • The company is continuing its focus new product innovation. It has launched 110+ new products in hygiene, health & wellness, natural & convenience categories
  • E-commerce sales have grown by 50% in Q4 and has grown 3x in the last two years contributing 7% of FMCG sales. Digital presence through ‘Unnati’ app has been expanded to 3 lakh retail outlets. Rural stockist & market coverage increased to 1.4x and direct distribution increased to 1.1x in FY22
  • The 29.6% growth in agri business is contributed by wheat exports due to significant increase in wheat prices globally after Ukraine-Russia war. It is important to note that this growth came on already high base in corresponding quarter. Moreover, leaf tobacco also saw strong volume led growth during the quarter. The strategic sourcing supported branded packed foods business i.e. wheat, dairy & spices
  • Hotels business growth of 35% led by recovery in occupancies & ARRs. However, ARRs still remain below pre-Covid levels. Exit occupancies are higher than pre-Covid levels. Q4 revenues are at 84% of Q4FY20 levels. Segment EBIT was at Rs 32 crore
  • Paperboard, paper & packaging business saw 31.8% sales growth to |2183 crore led by demand revival across end user segments. Segment profit witnessed a growth of 39.1% to Rs 450 crore with 107 bps improvement in margins. The company has increased capacity of value added paperboard in FY22. Moreover, it is setting up a greenfield project in Nadiad, Gujarat for packaging & printing products. This would be commissioned in Q2FY23
  • ITC Infotech witnessed 16.3% revenue growth (Rs 2853 crore) in FY22 with 16% growth in EBITDA (Rs 717 crore) & 19.9% growth in PAT (Rs 541 crore)
  • Operating profit grew 16.8% to Rs 5224.4 crore led by operating leverage given the company saw strong sales growth across segments. High commodity inflation resulted in gross margin contraction of 56 bps however, the company was able to save 70 bps & 27 bps in overhead & employee spends, respectively. Net profit grew 11.8% to Rs 4191 crore
  • The company declared a final dividend of Rs 6.25/share. Along with the interim dividend of Rs 5.25/share, total dividend was at Rs 11.5/share, which is 4.3% dividend yield


I/We, Sanjay Manyal MBA (FINANCE) Research Analyst, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15%

Pankaj Pandey                                                                                                     Head – Research                                                                             pankaj.pandey@icicisecurities.com


ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 research@icicidirect.com

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