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Below the Views on ITC Ltd. Q2FY25 Result by Akriti Mehrotra, Research Analyst, StoxBox

Consolidated Figures:
- The company reported a consolidated revenue of Rs. 22,282 crores for the quarter ended September 2024 (up 11.2% QoQ / up 15.6% YoY) which surpassed market estimates supported by agri business and hotel.
- The company earned an EBITDA of Rs. 6,762 crores for Q2FY25 (up 0.2% QoQ / up 4.8% YoY) with a margin of 30.3%.
- The consolidated PAT for the quarter ended September 2024 was Rs. 5,054 crores (down 2.2% QoQ / up 1.8% YoY) with a PAT margin of 22.7%. The PAT was impacted by the profitability of hotels and paperboards, paper and packaging businesses.

Segment Information:

FMCG - Cigarettes
- Growing by 7% YoY, the consolidated revenue of the cigarettes segment reached Rs. 8,878 crores. This growth was supported by a recovery in volume, attributed to stability in tax rates and effective actions by enforcement agencies. The segment results amounted to Rs. 5,242 crores, achieving a robust segment margin of 59%. Strategic portfolio interventions and a focus on competitive markets have strengthened market standing, with differentiated and premium offerings performing particularly well. Despite severe cost escalations in leaf tobacco, improved product mix and strategic cost management helped mitigate the impact.

FMCG - Others
- The FMCG - Others segment recorded a consolidated revenue of Rs. 5,585 crores for the quarter ended September 2024, reflecting a 5.4% increase YoY (up 7% YoY excluding Notebooks). The segment results reached Rs. 444 crores, showing a 0.4% increase YoY but a 7.3% decline QoQ. Growth was driven by Staples, Biscuits, Snacks, Frozen Snacks, Dairy, Premium Soaps, Homecare, and Agarbatti. The Notebooks category was affected by a high base effect and increased competition from local brands due to a sharp drop in paper prices. Segment EBITDA rose by approximately 2% YoY, with a slight margin drop of 35 basis points amid inflationary pressures on input costs, while the two-year CAGR stood at 13%.

Hotels
- The Hotels segment reported a robust performance, with revenue of Rs. 789 crores, supported by strong growth in F&B, Retail, and Weddings. EBITDA margin expanded by 70 basis points due to higher RevPAR, operating leverage, and strategic cost management. The recently opened ITC Ratnadipa in Colombo, Sri Lanka, has garnered excellent feedback.

Agricultural Segment
-  Registering a consolidated segment revenue of Rs. 5,845 crores, the Agri Business segment saw a 47% YoY increase, driven by strong performance in Leaf Tobacco and Value Added Agri products. Robust growth in Leaf Tobacco exports was supported by strong customer relationships and new business development, while the value-added portfolio, including Coffee, Fruits, Vegetables, and Spices, performed well. The company is focused on building crop resilience through customized agronomy practices, impacting 7.5 lakh farmers. However, escalating costs in green leaf tobacco and rising ocean freight pressures affected margins, which were partially mitigated by strategic cost management initiatives.

Paperboards. Paper and Packaging and Other Segment
- The segment revenue increased by 2.1% YoY, reaching Rs. 2,114 crores, and grew by 6.9% QoQ. However, segment results declined by 25.4% YoY. The operating environment remained challenging due to low-priced Chinese supplies in global markets, soft domestic demand, and a significant surge in domestic wood costs, adversely impacting performance. Despite these challenges, strong export growth and strategic portfolio management helped mitigate some pressures. The Packaging and Printing Business experienced subdued demand, with muted order books and soft realizations.

Other Events
- After obtaining approval from the stock exchanges, the Scheme of Arrangement for the demerger was filed with the NCLT. On October 4, 2024, the NCLT sanctioned the Scheme for ITC Limited and ITC Hotels Limited. A certified copy of the order is pending, and the Scheme will become effective after its filing with the Registrar of Companies, West Bengal, and meeting other conditions.
- The state-of-the-art facility to manufacture and export Nicotine and Nicotine derivative products has been commissioned. Customer trials are underway and export shipments are expected to be scaled up progressively in the coming period.
- Many new product launches were made within the branded packaged foods, including Aashirvaad Soya Chunks, Roasted Short Vermicelli, Sunfeast Mom’s Magic Cashew & Almond Ghee Roasted Nuts, Sunfeast Super Egg & Milk, Korean Fiery Hot Style Noodles, Korean Spicy Kimchi Style Noodles, Bingo! Tedhe Medhe Xtraa Teekha, and Bingo! 2X Hot and Spicy Korean-Style Chips, etc.

View:
ITC Ltd. posted strong results for Q2FY25, driven by robust performance in various segments, particularly the agri business and hotel segment, despite a challenging environment characterized by subdued demand, heavy rains, rising inflation, and increased raw material costs impacting the company's margins. The company improved its market position through strategic product differentiation and premiumization. The hotel segment benefited from increased retail activities and events like wedding, while the FMCG cigarettes segment showed resilience amid rising costs. Conversely, the FMCG non-cigarette sector faced challenges primarily due to inflationary pressures and growing competition, particularly in the noodles, snacks, biscuits, and popular soaps categories. The agri business experienced significant growth, driven by leaf tobacco and value-added products, although margins were affected by rising costs. However, early signs of rural demand recovery after several quarters suggest a positive outlook for consumption demand in the near term. With focus on consumer centricity, purposeful innovation, agility and execution excellence, the company remains confident of navigating the short-term challenges and creating sustained value for all stakeholders. Also, implementation of several strategic cost management initiatives in areas such as supply chain optimization, smart procurement and productivity improvement through automation leveraging new-age technologies such as Industry 4.0, AI/ML, advanced visual analytics and smart utilities, the company is set to maintain its market leadership position and deliver consistent growth for the coming period.
 

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