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Supreme performance; Promising outlook

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.

* Standalone revenue up 31.3% YoY to Rs. 16,634cr (+24.5% QoQ) in Q3FY22, led by strong performance across all operating segments.

* EBITDA grew 18.2% YoY to Rs. 5,102cr, however EBITDA margin contracted 330bps YoY to 30.7% due to unprecedented input cost inflation. Subsequently, PAT grew 12.7% YoY to Rs. 4,156cr, slightly offset by lower other income and higher taxes.

* Progressive recovery in economic activities, pick up in external trade, strong consumer demand, company’s focus on innovation and judicious pricing action and wide distribution network will help generate lucrative gains in future. Hence, we reiterate our BUY rating on the stock with a rolled forward TP of Rs. 291 based on SOTP valuation.

Strong performance across all operating segments

In Q3FY22, standalone revenue grew 31.3% YoY (+24.5% QoQ) to Rs. 16,634cr, driven by robust performance across all operating segments. Cigarettes business up 13.6% YoY to Rs. 6,244cr (+10.7% QoQ) due to robust recovery across markets, aided by increase in mobility and agile supply chain. FMCG Others up 9.3% YoY to Rs. 4,091cr (+1.3% QoQ), led by robust growth in discretionary and OOH portfolio. Paperboards, Paper & Packaging (PPP) segment grew 38.5% YoY to Rs. 2,046cr (+11.8% QoQ), due to demand revival across most end user segments and higher exports. Hotels business surged 101.3% YoY to Rs. 473cr (+60.6% QoQ), with easing of travel restrictions and onset of festive/wedding season. Agri business soared 100.0% YoY to Rs. 4,962cr (+78.8% QoQ), led by strong revenue growth in wheat, rice, spices and leaf tobacco exports.

Unprecedented rise in commodity prices affects margins

Gross profit grew 18.1% YoY to Rs. 7,969cr (+12.4% QoQ), however gross margin fell 540bps YoY to 47.9%, due to unprecedented inflation in key input commodities like edible oil, soap noodles, metallocene, BOPP and kraft paper. Subsequently, EBITDA rose 18.2% YoY to Rs. 5,102cr (+10.6% QoQ), with EBITDA margin falling by 330bps YoY to 30.7% (-390bps QoQ), further impacted by higher other expenses (+26.4% YoY, 18.7% QoQ). PAT up 12.7% YoY to Rs. 4,156cr (+12.4% QoQ), further dented by lower other income (-16.7% YoY) and higher taxes (+12.0% YoY, 12.9% QoQ).

Key Quarter highlights

* Stockist’s network, market coverage and direct outlet servicing at 1.7x, 1.5x and 1.1x to that of last year levels.

* The e-commerce site “itcstore”, ensures on-demand access for customers to shop from over 700 FMCG products across 45 categories under one roof.

* The Company declared an interim dividend of Rs. 5.25 per share.

Valuation

ITC Ltd. delivered supreme performance across all operating segments in Q3FY22. Decline in Covid cases, accelerated vaccination, improvement in business environment with increased mobility, strong consumer demand and pick up in external trade will drive the performance of the company in future. Company’s focus on strategic cost management schemes, innovation and judicious pricing action will tackle unprecedented input cost inflation. With promising outlook, we reiterate our BUY rating on the stock with rolled forward TP of Rs. 291 using SOTP valuation.

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