- 04 Feb 2022
- ICICIdirect Research
ITC reports robust growth in cigarette businessITC - 446 Change: -4.40 (-0.98 %)
News: Revenue witnessed a revenue growth of 31.7% to Rs.16806.9 crore led by strong 13.6% growth in cigarettes business, 38% growth in paperboard business & doubling of agri & hotels business. Similar to peers, FMCG business witnessed a slower 9.3% growth during the quarter. Given no price hikes in cigarettes, we believe cigarette volume growth would have been closer to ~15% during the quarter. Gross margins contracted by 666 bps during the quarter. We believe the company is aggressively pushing cigarettes volume through trade incentives. Moreover, higher sales of agribusiness (low margin trading business) & high commodity inflation in FMCG business would have adversely impacted gross margins. Operating profit grew by 14.3% to Rs.5102.1 crore however operating margins contracted by 461 bps to 30.4% during the quarter. Net profit witnessed a growth of 8.1% to Rs.4156.2 crore. The company declared interim dividend of Rs.5.25 / share.
Views: ITC cigarettes business was one of the worst impacted business in last two years due to Covid-19 disruptions. Cigarette business growth in the current quarter reflect that volumes surpassed pre-covid high. Similarly faster growth in paperboard business also reflecting demand recovery from the user industries. Though, FMCG business has grown at a slower pace of 9.3%, it is still stronger growth compared to most other FMCG peers. We believe stable taxation on cigarettes would result in high growth in cigarette volumes in the medium term. Further, we believe FMCG business margin uptick trajectory would continue (after the elevated commodity prices normalise). We are positive on FMCG growth & margins expansion possibility & the company’s better capital allocation policy (higher dividend pay-out & no more capex on hotels business).