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ITC Q2FY22 results were in line with our estimates on the revenue, operating profit & earnings front

News: Revenue grew 12% to Rs. 13533.5 crore (I-direct estimate : Rs 13585.9) led by 10.2% growth in cigarette sales and 25.4% growth in paperboard business sales. Hotels business witnessed strong recovery with 3.6x increase in sales. FMCG sales saw 2.9% growth mainly on account of high base impacted by strong sales in essentials. Agri business sales de-grow by 7% due to shortage of availability of shipping containers. Operating profit grew by 12.9% to Rs.4615 crore (Idirect estimate : Rs.4766.6 crore). Operating margins remained similar to the corresponding quarter. Led by increase in operating profit, net profit increased by 13.7% to Rs.3697.2 crore (Idirect estimate: Rs.3619.1 crore). Segment wise cigarette volumes were aided by swift recovery in mobility, EBIT increased by 10.2% to Rs. 3583.2 crore.

Views: Though ITC saw strong recovery in cigarette volumes from the low base quarter, volumes have not yet reached pre-Covid levels. With the increase in mobility & remote chance of any third pandemic wave, we believe volumes would reach to the pre-covid levels in Q3FY22. However, the segment is adversely impacted by illicit cigarettes, which remains a structural problem for the category. FMCG business has been able to maintain its margins at 10% despite very high commodity inflation. Similarly, we also believe hotels business sales would come back to the pre-Covid levels by Q4FY22, which would help in regaining profitability in the segment. We remain cautiously optimistic about the growth given FMCG business prospects looks promising amid stagnant cigarettes business sales.