At a time when most friends witness margin headwinds, each single phase of ITC has seen steady to increasing margins in This autumn, with sensible positive aspects in cigarette & FMCG. Cig. quantity development at 9% is spectacular with double-digit Ebit development, broadly in line. >20% Ebitda development is a key optimistic in FMCG. Dividend pay-out improves to c.95% whereas capex is near-flat y-o-y – this drives up RoE to a 7-Y excessive of 25%. ITC stands out given excessive margin visibility & we retain Buy.
In-line This autumn: ITC’s This autumn standalone Ebitda grew 17% y-o-y to Rs 52.2 bn, in step with our estimates. Growth was led by the cigarette enterprise, which noticed a 12% Ebit development (in-line). FMCG enterprise shocked positively, each on income and margin fronts. Paperboards additionally carried out higher than anticipated, though this was offset by a miss in lodges (third wave influence) and agri enterprise. EPS development was a tad decrease (+12% y-o-y) attributable to decrease different monetary earnings.
Cigarette restoration: Net cigarette income grew 10% y-o-y, with volumes up c.9%, in our view. Management highlighted continued broad-based restoration, with minimal disruptions as a result of third Covid wave. Volumes have been above pre-Covid degree for the second consecutive quarter.
FMCG outperforms: FMCG income grew 12% y-o-y (vs. 9% in Q3), higher than estimates. Growth was led by discretionary/ out-of-home classes as mobility improves. Staples and comfort meals additionally have been resilient, whereas hygiene portfolio noticed volatility. Re-opening of faculties/faculties aided restoration in schooling and stationery portfolio which enjoys higher margins. FMCG profitability additionally shocked positively, with Ebitda margin up 75bps y-o-y to 9%, regardless of inflationary headwinds.
FY22: FY22 was a yr of restoration for ITC, regardless of hiccups from second Covid wave. Ebitda grew 22% y-o-y (2Y CAGR: 3%) led by 17% cigarette Ebit development (2Y: flat), 11% development in FMCG Ebit, decrease losses in lodges and a 40% leap in agri +paperboards Ebit. EPS development was decrease (+16%), attributable to decreased different earnings.
Higher dividend, decrease capex: ITC introduced a remaining dividend of Rs 6.5, taking the complete yr dividend to Rs 11.5 (>4% yield), up 7% y-o-y. Capex spends have been restricted to Rs 17 bn, broadly just like FY21. FCF conversion was additionally wholesome at >80% of pre-exceptional PAT.
Maintain Buy: We largely retain our FY23/24e EPS estimates. While FMCG friends fight development slowdown and RM pressures, ITC is seeing a restoration in earnings, with good momentum throughout verticals and excessive margin visibility. Higher dividend payout and decrease capex are additionally encouraging. We retain Buy with an unchanged PT of Rs 305.
Source: www.financialexpress.com”