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Topline growth continues; Outlook positive ITC limited is a diversified conglomerate with presence in FMCG, Hotels, Paperboards & Specialty Papers, Packaging, and Agri-business. The company directly employs over 36,500 people across businesses.

* Q4FY21 standalone revenue grew 24.1% YoY, with improvements seen across all the segments.

* EBITDA rose 7.4% YoY to Rs. 4,473cr in Q4FY21, despite contraction in margins (-490bps YoY to 31.9%). PAT was marginally down by 1.3% to Rs. 3,748cr, impacted by higher tax outgo (+54.7% YoY).

* Management declared a final dividend of Rs. 5.75/share, taking total dividend for FY21 to Rs. 10.75/share.

* ITC’s business segments have been performing well on the back of demand growth, aiding topline performance. With margins expected to improve moving forward, we maintain our BUY rating on the stock with a revised target price of Rs. 256 based on SOTP valuation

Decent performance in FMCG; Agri business outperforms

Q4FY21 standalone revenue rose 24.1% YoY (+16% on comparable basis) to Rs. 14,023cr on account of robust recovery across all the segments boosted by increased demand for discretionary products. During the quarter, Cigarettes sales volumes almost recovered to pre-COVID levels aiding sales growth of 14.2% YoY to Rs. 5,860cr.

FMCG-Others business grew 15.8% YoY to Rs. 3,688cr mainly due to strong performance of Out-of-home categories supported by stable demand from food and Hygiene products. Agri business reported a robust 78.5% YoY growth in revenue to Rs. 3,369cr, while Paper & Packaging business topline grew 13.5% YoY to Rs. 1,656cr driven by strong demand from pharma and decor industries. Meanwhile, Hotels business declined by 38.2% YoY to Rs. 288cr, as the Travel & Tourism industry remained impacted due to the COVID-19 pandemic.

FMCG margin expansion supports EBITDA and PAT

For Q4FY21, EBITDA grew 7.4% YoY to Rs. 4,473cr (+3.7% QoQ), despite EBITDA margin contraction of 490bps YoY to 31.9% primarily on higher cost of sales and other operating costs. EBITDA margin expansion was observed across some of the segments, but FMCG business led the expansion, as demand for branded foods increased. EBIT improved by 8.3% YoY to Rs. 4,085cr, whereas PAT remained largely stable at Rs. 3,748cr (vs. Rs. 3,797cr in Q4FY20), partially impacted by higher taxes (+54.7% YoY).

Growth momentum to continue in FMCG business

Integration of Sunrise Foods should help ITC focus on value adding niche products (Ex: Spices, etc.) which further enables margin expansion for this segment. Additionally, changing consumer buying preferences from private labels to branded ones should help drive demand. This shift in behavior could largely be attributed to increased concerns over hygiene and safety in the current pandemic scenario. ITC is wellpositioned to benefit from this opportunity with adequate inventory levels, coupled with rapid expansion on outlet and stockists front to capture demand going forward.

Valuation

With constant focus on innovation and improving product-mix, ITC is well-placed to capture demand across segments. Steady topline growth along with improved margins going forward should help reduce its operational leverage, further boosted by its ability to implement structural changes in its value chain. We maintain a positive view on the stock and reiterate our BUY rating with a revised target price of Rs. 256 based on SOTP valuation.

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