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Steady revenue growth: ITC’s gross sales for Q2FY24 grew by 3.6% YoY and 3.4% QoQ to Rs 19,270cr while its net sales came in at Rs 17,734cr which is an increase of 3.9% YoY and 3.6% QoQ. The top line growth was driven largely by its cigarettes, FMCG and hotel business while muted performance was seen from agri and paperboard segment

Margins remain muted for Q2FY24: The company’s gross profit grew by 3.7% YoY and 0.9% QoQ to Rs 10,705cr and margins at 60.2% down by 9bps YoY and 161bps QoQ as raw material prices trend was mixed during the quarter. Some commodity prices declined but uptick in certain commodities such as wheat, maida, sugar, potato, etc impacted growth. Further, EBITDA grew by 3.1% YoY but de-grew by 3.2% QoQ to Rs 6,454cr and margins down by 27bps and 255bps as their focus was towards spending on advertisement, brand building, as they started facing intense competition from locals. Further, PAT improved by 6% YoY but de-grew by 4.3% QoQ to Rs 4,964.5cr and margins increased by 56bps YoY/230bps QoQ

Decent growth of Cigarettes segment: ITC’s cigarettes segment revenue for Q2FY24 grew by 9.1% YoY but was flat QoQ to Rs 8,328cr. Further its contribution to revenue came in at 43.2% which is an improvement of 218bps YoY but share decreased sequentially by 161bps. On the profit front, it still remains the largest share contributor with sharing 75% of profits in Q2FY24. Its profits grew by 7.9% YoY and 1.2% QoQ to Rs 5,003cr. Overall growth was mainly driven by launch of differentiated variants, strong product portfolio and focus on premiumization aided sentiments.

FMCG sector growing strong: ITC’s FMCG sector has shown strong growth both on revenue and margin front. Its revenue for Q2FY24 grew by 8.4% YoY and 2.5% QoQ to Rs 5,303cr and its profits grew by 36.5% YoY and 1.9% QoQ to Rs 442cr. FMCG now contributes 27.5% in revenue and 6.6% in profits. Despite the challenging environment, FMCG business growth was led by Atta, Spices, Personal Wash and Agarbatti as well as notebooks and pens while for margin improvement it focused on cost management, product mix with mainly premiumization and lastly price actions. Besides, it is facing competition from local vendors however they continue to focus on spending on advertisement and brand building as well as innovative products in categories such as Bingo, Sunfeast, Bounce, Fantasy, Salvon, Sunrise, classmate, Frozen snacks, Engage. Additionally, with strong opportunity in the sector, the company aims to grow and increase its contribution to revenue and profits from this sector.

Outlook & Valuation: ITC reported mixed set of numbers for Q2FY24 with single digit revenue growth and muted margins on the back of mixed trend amongst its segments. Going ahead, their plan is to focus on ITC Next strategy and continue to scale its FMCG and cigarettes business led by innovation and premiumization. Besides, the demerging hotel business is moving as per plan which is positive. We are positive on the growth prospects ahead and financially estimated its Revenue/ PAT to grow at 15%/19.2% CAGR over FY23-25E. We maintain our Buy rating with a target price of Rs 535 on the stock

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SEBI Registration number is INZ000174330