ITC's Q1 PAT Rises 18% To Rs 4,903 Crore, Revenue Declines; Should You Still Accumulate This FMCG Stock

FMCG giant, ITC has posted a mixed performance in the quarter ending June 30, 2023 (Q1FY24). Standalone net profit in Q1FY24 came in at Rs 4,902.74 crore, rising by a whopping 17.6% from a profit of Rs 4,169.38 crore a year ago same quarter. However, revenue from operations declined by 7.2% to Rs 16,995.49 crore in the quarter as against Rs 18,320.16 crore in Q1FY23. Broadly, the profitability was in line, however, ITC missed in revenue terms. Post the Q1 earnings, should investors buy ITC shares?

ITC said, "Amidst a challenging operating environment as stated above and high base effect in some of its operating segments, the Company sustained its strong growth momentum during the quarter driven by focus on customer centricity, accelerated digital adoption, execution excellence and agility."

As per the regulatory filing, ITC posted robust growth in the FMCG-Others segment, as revenue here exceeded Rs 5,000 crore for the first time in a quarter to Rs 5,166 crore up by 16.1% YoY. Also, the segment EBITDA margin expanded 325 bps YoY to 11.0%.

Meanwhile, ITC continued its strong performance in the cigarettes segment. Net revenue here jumped 10.9% YoY, while PBIT climbed 11.2% YoY.

Furthermore, ITC posted the best-ever quarter in the hotel business, as the segment revenue was up by 8.1% YoY on a high base and PBIT climbed 17.0% YoY led by strong growth in ARRs. Agri-Business was up by 31% YoY (excl. wheat exports), with PBIT soaring by 25.3% YoY.

However, ITC said, "Subdued demand conditions (domestic and exports), low priced Chinese supplies in global markets, sharp reduction in global pulp prices and high-base effect weigh on the Paperboards, Paper and Packaging Segment." The segment revenue declined 6.5% YoY, and also PBIT dipped by 22.9% YoY.

On BSE, ITC shares closed at Rs 448.95 apiece flat on Monday.

Should investors buy ITC shares after Q1 earnings?

Anushi Vakharia, Research Analyst, StoxBox said, "ITC Ltd. reported a decent performance in its biggest revenue-generating segment i.e. FMCG Cigarettes on the back of a consistent volume growth and relative stability in taxes. Along with this, FMCG - others business prospects remain optimistic with the segment reporting a broad-based growth across its multiple categories and amping up its rural distribution reach and direct outlets coverage. However, the overall revenue declined 6.0% YoY to Rs. 17,811.8 crores owing to weakness displayed in its Paperboard business due to subdued demand and a ban on wheat exports impacting the Agri business. The EBITDA margins improved to 35.8% in Q1FY24 compared to 30.6% in Q1FY23 owing to a premium mix in FMCG-others and an increase in RevPAR in the Hotel business offsetting the uptick in tobacco prices and lower realization in the Paperboards business."

Overall, Vakharia added, "the business maintained robust momentum in its FMCG business which it aims to scale further in the upcoming quarters. However, our focus would remain on the future trajectory of the Paperboards business and keep a check on new developments with the company's decision to demerge its hotel business."

Also, Amnish Aggarwal - Head Of Research, Prabhudas Lilladher has given 'Accumulate' rating on ITC shares for a target price of Rs 478. Currently, the stock trades at 24.3x FY25 EPS.

Moreover, Centrum Broking analysts recently attended 112th Annual General Meeting of ITC. They highlighted that ITC's chairman articulated ITC-Next strategy provided agility, responsible competitiveness, growth and profitability in the face of global uncertainties. The company has traversed a remarkable journey of transformation across each business vertical reporting revenue/EBITDA/PAT growth of 17.2%/26.7%/24.1% in FY23 with an improvement in gross margin at 55.8%. Cigarette/FMCG/ Hotel/Paper/Agri revenues grew 20.3%/19.6%/18.8%/12.2%. More importantly non-cigarette business today accounts for 67% of revenues and 28% of segment EBITDA.

In their research note, Centrum Broking's analysts added, "With new vectors of growth and competitiveness ITC is nurturing mega trends in digital through Foodtech, ITCMAARS, Master-Chef, Sunfeast-baked-creations to create future-ready portfolio seeking structural competitiveness. Company's FMCG business has redefined the critical pathways to growth and profitability backed by 25+ brand portfolio that represents an annual consumer spend of Rs290bn. Under its commitment for rural transformation and to empower farmers ITC today procures 4.5MT of agri commodities across value chains spread over 22 states. The emerging trends for plastic substitution will provide further fillip to the demand for paperboard and plat based moulded fibre biodegradable products. The hospitality industry is poised for strong growth due to confluence of favourable factors. That said we remain positive as ITC placed to deliver stronger, competitive and profitable growth in years to come."

"We believe guided by its ITC-Next strategy, ITC is placed to deliver stronger, competitive and profitable growth ahead. We reiterate strong BUY, with a DCF-based TP of Rs486 (implying 26x FY25E EPS)," Centrum's note added.

Disclaimer:

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