REPORTS NUMBERS IN LINE WITH ESTIMATE ON REVENUE, AHEAD OF ESTIMATE ON OPERATING PROFIT, EARNINGS - ITC LATEST QUARTERLY RESULT

ITC – Q3FY23 First Cut

(CMP - Rs 380, MCap - Rs 4,72,353 crore)

Q3FY23 Earnings Summary

Revenue witnessed growth of 2.7% to Rs17265.5 crore (I-direct estimate : Rs17794.9 crore) led by strong cigarette, FMCG & Hotels business sales. Paperboard business also saw healthy growth with some moderation from last few quarters. Agri business sales decline after the restriction on wheat & rice exports imposed in May-June 2022

Cigarettes business witnessed strong 16.7% growth led by 12%+ volume growth (our estimate). ITC is continuously gaining market share with the strong growth contribution by Rs10/ price point & above cigarettes categories. FMCG business saw robust growth of 18.2% led by strong growth from discretionary categories & higher contribution from education & stationary segment, which was low in base quarter

Paperboard business saw healthy growth of 12.7% led by mix of volumes & pricing. Agri business sales declined by 37.1% with restriction on wheat & rice exports during the quarter. With the record occupancies & ARR (average room rates), hotel business saw 50.5% growth during peak holiday season

Gross margin improved by 730 bps with significant improvement in Paperboard, hotels business margins. Agri segment margin also improved by 650 bps mainly due to absence of low margin wheat & rice exports & strong demand for leaf tobacco. FMCG segment margin (EBITDA) improved by 90 bps to 10%. Paperboard segment margins (EBIT) also improved significantly 440 bps during the quarter

Operating profit grew by 22% to Rs6223.2 crore (I-direct estimate: Rs 5743.5 crore) with 569 bps improvement in operating margin during the quarter. Net profit grew by 21% to Rs5031 crore (I-direct estimate : Rs4503.7 crore) during the quarter

Views: ITC continues to see strong growth in cigarette volumes with market share gains & robust traction in Rs10 / stick price point cigarettes. We believe this segment is witnessing strong 20-25% growth. Stable taxation over the last five years have led to the volumes recovery specifically in post Covid period. Further crackdown on illicit cigarettes has also helped legal cigarettes industry to gain volumes & market share. ITC has also benefited by strong growth in hotels, paperboard & FMCG businesses with significant improvement in margins due to strong hotels occupancies, higher pricing growth in paperboard & increasing contribution of high margin education & stationary in FMCG business. Also, agri business margin uptick is largely contributed by absence of low margin commodities (wheat & rice). Given, tax increase in budget 2023 is insignificant, ITC would continue to witness strong volume growth in cigarette business in future. We remain positive on the company

Impact: Positive