ITC posts healthy margin gains for cigarette and FMCG companies as most of its peers face headwinds

Soap cigarette maker ITC saw healthy margin expansion in its core cigarette and non-cigarette FMCG businesses in the fourth quarter last year when most of its peers witnessed headwinds on the margins.

The diversified conglomerate increased its EBIT margins by around 80 basis points year-on-year to 74.2% for its cigarettes business and by around 60 basis points year-on-year to 5.7% for the non-FMCG business. cigarettes during the January-March quarter. This year. Since agricultural products make up a large portion of the company’s raw materials for its FMCG business, input cost pressures are relatively low.

While the operating profit of the cigarette segment increased by 12.21% YoY to reach Rs 4,114.27 crore, that of the non-cigarette FMCG segment recorded a growth of 25% YoY to reach Rs 235.99 crore during Q4FY22. The Agribusiness segment’s operating profit rose 28.51% year-on-year to Rs 243.98 crore, but its EBIT margins remained flat at 5.6%.

“At a time when most peers are witnessing margin headwinds, every ITC segment saw flat to expanding margins in Q4, with smart gains in cigarettes and consumer staples” , Jefferies said in a note. During the fourth quarter, the diversified conglomerate’s Ebitda (earnings before tax, interest, depreciation and amortization) increased by 16.8% year-on-year to Rs 5,224.36 crore.

ITC’s BSE certificate closed up 3.43% at Rs 275.65 each on Thursday, while benchmark Sensex plunged 1,416.30 points or 2.61%. During the day, certificates touched 279.15 each, a new 52-week high.

The conglomerate beat Street estimates on Wednesday, reporting an 11.81% year-on-year rise in standalone net profit to Rs 4,190.96 crore for the fourth quarter of the prior fiscal year, helped by 15.71% year-on-year growth in its gross sales revenue.

Revenue from the cigarette business increased by 9.96% year-on-year to Rs 6,443.37 crore, with volume growth of 9%. The company said there had been a “broad and robust recovery” in cigarettes despite the disruption from the third wave. Volumes exceeded pre-pandemic levels.

“ITC continues to innovate in cigarettes to combat illicit trade and strengthen its market position,” said Edelweiss Securities.

“The stable taxation on cigarettes should boost volumes in the future. Additionally, the company has gained market share in cigarettes over the past year through new premium products and aggressive trade promotion,” ICICI Securities said in a note Thursday.

ICICI Securities said growth in consumer products sales was driven by strong growth in the education and stationery segment due to the reopening of schools, sustained growth in basic products and the strong growth in discretionary categories. Although sales of the hygiene portfolio (Savlon) were down from the peak, they were still significantly above pre-Covid numbers. “Consumer staples growth is driven by a combination of volumes, price growth and improved product mix,” the note said.

The non-cigarette FMCG business recorded a 12.32% year-on-year growth in revenue to Rs 4,141.97 crore. The FMCG segment’s EBITDA margin increased by 75 basis points to 9%, despite pressure from commodity inflation. The company was also able to maintain full-year margins at 9% (up 10 basis points) despite commodity inflation and lower sales of high-margin fixed products in during previous quarters.

In the fourth quarter of FY22, the company’s agribusiness revenue grew 29% year-on-year to Rs 4,366.34 crore, driven by wheat exports , rice and leaf tobacco. “Despite the challenging operating environment, the company took advantage of market opportunities and achieved strong growth with wheat exports tripling and rice exports doubling in FY21,” said said Motilal Oswal Financial Services in a report.

The hotel business recorded a 35.39% year-on-year increase in revenue to Rs 389.64 crore and an operating loss of Rs 34.22 crore from Rs 40.10 crore in the fourth quarter of the fiscal year previous. “Hotels experienced a recovery driven by a focus on the domestic leisure and wedding segment,” Edelweiss Securities said in its note.

“Hotels saw the impact of the third wave in January/February, although exit occupancy rates exceeded pre-pandemic levels. ARRs have improved qoq, although they remain below pre-pandemic levels. Management highlighted improving business travel and a budding renaissance in international travel,” Jefferies added in its memo.

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