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Robust operating performance

ITC is a diversified conglomerate with presence in FMCG, hotels, paperboards and specialty papers, packaging, and agri-business. The company directly employs over 36,500 people across businesses

• ITC’s standalone revenue in Q1FY23 stood at Rs. 18,164cr, up 41.0% YoY and 11.9% QoQ, led by strong show across operating segments.

• EBITDA grew 41.5% YoY to Rs. 5,648cr, with a stable EBITDA margin of 31.1% despite input cost pressure. PAT stood at Rs. 4,169cr, up 38.4% YoY and down 0.5% QoQ. The reason for the sequential decline is a fall in other income

• The company has a sharp focus on investing in cutting-edge technology, leveraging customer relationships and delivering strong performance across segments. We expect the coming festival season to boost consumption expenditure, which will support growth momentum. Hence, we reiterate our BUY rating on the stock with a rolled forward TP of Rs. 352 based on SOTP valuation

Stellar performance across operating segments

ITC’s standalone revenue grew 41.5% YoY and 11.9% QoQ to Rs. 18,164cr driven by robust performance across operating segments. Revenue from agri-business grew a robust 82.7% YoY to Rs.7,473cr, led by wheat, rice and leaf tobacco exports. Paperboards, paper & packaging (PPP) revenue rose 43.3% YoY to Rs. 2,267cr aided by higher realisation and strong demand due to reopening of educational institutions. The cigarettes business revenue grew 29.0% YoY to Rs. 6,609cr, driven by green shoots of volume recovery and focused portfolio interventions along with agile execution. Revenue from FMCG and others was Rs. 4,451cr, up 19.5% YoY and 7.5% QoQ as rural demand picked up. The company saw a sharp rebound in hotels revenue as ARR (Average Room Rate) and occupancy surpassed that of pre-pandemic levels with a YoY growth of 336.2% to Rs. 555cr

Margins sustained despite input cost pressure

Standalone EBITDA grew in line with revenue — up 41.5% YoY to Rs. 5,648cr. Margin remained steady at 31.1% despite input cost pressure as a result of commodity inflation. Gross profit grew 36.2% to Rs. 8,656cr slightly impacted by doubling of purchase of stock in trade. Purchase of stock in trade increased 109.9% to Rs. 4,917cr accounting for 27.0% of revenue compared with 18.2% in Q1FY22. PAT increased 38.4% YoY to Rs. 4,169cr, offset by reduced other income.

Key quarter highlights

• ITC is focused on acceleration of customers’ digital transformation initiatives using SaaS (Software as a Service)

• The management believes all businesses are aligned with its 2030 sustainability targets

Valuation

ITC delivered a strong operational and financial performance across business segments despite the ongoing challenges, including high inflation. We expect a good festival season ahead which will lead to a pick-up in consumption expenditure. We also expect leisure, FMCG, PPP and agri-businesses to deliver strong performance by leveraging strong customer relationships. ITC continues to focus on investment in cutting-edge technology by accelerating digital presence. With a promising outlook and trust in the stock’s resilience in the current market volatility, we reiterate our BUY rating with rolled forward TP of Rs. 352 using SOTP valuation.

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