ITC: Broad-based sales growth drives EBITDA beat
. ITC: Broad-based sales growth drives EBITDA beat
(ITC IN, Mkt Cap USD48.1b, CMP INR308, TP INR355, 15% Upside, Buy)
- Sales growth momentum was better than expected across businesses in 1QFY23. Barring the Agri business, where the ban on wheat exports may result in relatively muted growth in subsequent quarters, momentum in other businesses is expected to remain robust.
- As highlighted in our note as well as our , strong earnings momentum (16% EPS CAGR over FY22-24 v/s ~5% in the preceding five years) is being led by good performance from Cigarettes in a stable tax environment, healthy recovery in profitability for the Hotels business, and continued good performance from FMCG-Others. Unlike peers, pressure on material costs is far lower. Allied with better capital allocation and continued healthy dividend payout, the path towards high 20s or early 30s RoE is visible. We maintain our Buy
EBITDA beat on strong growth across segments, led by the Agri business
- Net revenue grew 41.5% YoY to INR172.9b (est. INR148.8b). EBITDA rose 41.5% YoY to INR56.5b (est. INR50.8b). PBT/adjusted PAT grew 38%/38.4% YoY to INR55.4b/INR41.7b (in line).
- Gross margin fell 170bp YoY to 51% (est. 54.5%), while EBITDA margin remained flat YoY at 32.7% in 1QFY23 (est. 34.1%).
- Cigarette volumes are likely to have increased by 26% YoY in 1QFY23 (est. 11%). Volume growth in the base quarter was 31%. However, three-year volume CAGR stood at 1.3%. Net Cigarette sales grew 27.4% YoY to INR55.8b (in line). Cigarette EBIT grew 30.1% YoY to INR41.9b (est. INR40.3b). Three year Cigarette EBIT CAGR stood at 2.9%. Net Cigarette EBIT margin expanded by 160bp YoY to 75.1%.
- FMCG-Others sales grew 19.5% YoY to INR44.5b. EBIT rose 17.6% YoY to INR2b in 1QFY23.
- Sales from the Agri business grew 82.7% YoY to INR74.7b.
- Sales from the Paperboards business rose 43.3% YoY to INR22.7b.
- Sales from the Hotels business increased by 336% YoY to INR5.5b.
- Other income fell 27.1% YoY to INR3.1b.
ITC is a diversified manufacturing and marketing company which is based in India. Co. maintains an operating presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While Co. is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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