ITC REPORTED Q3FY25 FINANCIALS EXCLUDING THE DISCONTINUED HOTEL BUSINESS.

News: ITC reported Q3FY25 financials excluding the discontinued hotel business. Its net revenues (including other operating income) grew by 8.6%yoy to Rs17052.8crore 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 Rs5418.2crore (lower than street expectation of 6-7%). Gross margins decreased by 237BPS yoy to 54.4% while EBIDTA margins decreased by 239BPS yoy to 34.2%. Street had anticipated EBIDTA margins of 34% due to high inflation in FMCG and PPP business. 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 down by 211bps and 464bps in Q3. Agri business performed well with 10% revenue growth and EBIT margins improving by 120bps to 12.3 on back of better leaf tobacco exports. Overall EBIDTA stood flat at Rs5828.3crore and adjusted PAT grew by 1.7%yoy to Rs5035.9crore. Reported PAT grew by 1.9%yoy to Rs5,571.8crore. Exceptional item in Q3FY25 includes Rs463crore upon acquisition of certain investments at cost from wholly owned subsidiary while base quarter includes one off credit in tax expenses of Rs468.0crore. The company has declared the interim dividend of Rs6.5 per share.

View: 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. Management in the press release mentioned that the union budget 2025 focuses on boosting the income of middle-income group and improving the agri economy augurs well for recovery in the growth of FMCG business in the quarters ahead. We expect margins to remain under pressure in the near term and might gradually recover from Q1/Q2FY26 once commodity inflation stabilises.

Impact: Neutral