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Decent performance on top-line (ex-Agri business) ITC’s top-line witnessed de-growth (incld agri business) while margins saw strong improvement. Its gross revenue declined by 6% YoY and 2.2% QoQ to Rs 18,639.5cr while net revenue declined by 7.2% YoY and 2.7% QoQ to Rs 17,164.5cr but ex-agri its revenue grew by 10.6% YoY. The muted growth in revenue as compared to last year was because of de-growth in its Agri & paperboards segments while except that the overall performance was strong as growth was seen in segments like cigarettes, FMCG and hotel.

Strong improvement on margins: Gross margins improved by 6.8% YoY but de-grew by 2.3% to Rs 10,614.8cr and margins came in at 61.8%, an increase of 809bps YoY and 23bps QoQ. EBITDA grew by 9.8% YoY and 0.7% QoQ to Rs 6,670cr and margins came in 38.9% up by 599bps YoY and 130bps QoQ. The strong improvement on margins was led by decrease in raw material cost by 23.4% YoY/3.3% QoQ as well as decline in total expense by 15.5% YoY and 4.7% QoQ. PAT improved by 15.8% YoY but declined by 1.2% QoQ to Rs 5,180cr and margins were at 30.2%, up by 599bps YoY and 45bps QoQ

Growth continued for its largest contributing segment i.e. Cigarettes: ITC’s Cigarettes segment contributed majorly in the company’s revenue with a share of 44.8% in top-line and 71.2% in profits. Segment revenue grew by 11.9% YoY and 3.4% QoQ to Rs 8,355.7cr and also its profits grew by 10.6% YoY and 0.6% QoQ to Rs 4,944cr. The growth was largely driven by innovation of several differentiated variants and premiumization of products as well as stability in taxes on cigarettes aided volume recovery of legal cigarettes.

Stellar performance from FMCG segment: The company’s FMCG segment revenue came in at Rs 5,172.7cr, up by 16% YoY and 4.5% QoQ and its profit was at Rs 434cr, up by 109.8% YoY due to easing in raw material cost but was down by 13.9% sequentially. The growth was led by both urban and rural markets as well as premium products. Also, support was led by performance from Staples, Biscuits, Noodles, Beverages, Dairy, Agarbatti, premium Soaps as well as Education & stationery segments. During the quarter, the company launched new products in its branded packaged food under brands such as Aashirvaad, Sunfeast, personal products, etc. all this aided FMCG segment to increase its contribution to overall revenue thus contribution increased to 27.8% in Q1FY24 from 22.5% in Q1FY23. Further, the company plan is to focus on growing its FMCG segment and increase its contribution to revenue as there is a strong opportunity in the sector.

Outlook & Valuation: ITC reported decent numbers (ex Agri) led by performance of its major contributing segments. We believe its focus on innovation and premiumization will continue to benefit and at the same time focusing on ITC Next strategy will aid in scaling up all its businesses. Besides, its plan of demerging its hotel business and unlocking value for both the company and shareholders bodes well. We are optimistic on its growth plans ahead and have estimated its Revenue/ PAT to grow at 15%/19% CAGR over FY23-25E. We have assigned a P/E of 24x (10yrs avg.) and recommend a Buy rating with a revised target price of Rs 535.

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