Last updated: 26 Jul, 2021 | 01:20 pm
Revenue rises: ITC’s total revenues increased 36% on-year to Rs 12,959 crore in Apr- Jun 21 period, beating street estimates. Analysts were earlier expecting a revenue of about Rs 11,572 crore. However, the revenue was down sequentially by 8%. The cigarette segment which is the maximum contributor in revenue reported a 12.6% sequential fall in revenue.
Profit falls sequentially: ITC’s net profit declined 16% sequentially to Rs 3,190 crore in the quarter ended June. Analysts had earlier anticipated a net profit of about Rs 3,254 crore. FMCG cigarettes business, Cigarette business reported a strong 33% YOY growth in revenues, and 37% YoY growth in Profits. While the segment made up around 35% of revenues, its contribution to Profit before Tax was a whopping 84.1%, indicating the higher margins of this segment.
Margins contract slightly: Operating profit fell 11% on-quarter to Rs 3,992.16 crore. Operating margin stood at 30.8% versus 31.6% in the previous quarter.
ITC results: Segment-wise performance
FMCG - Others
ITC said that urban and rural growth rates in the FMCG industry got impacted due to the impact of the second wave, especially in the out-of-home consumption. The second wave too triggered an uptick in demand in staples and convenience foods, but the trend of consumers stocking up essentials was less pronounced compared to the lockdown phase last year. . Segment Revenue stood at Rs. 3726 crores, up 10.4% y‐o‐y on a high base. The Profit Before Tax for this segment grew 38.3% on-year to 173 crore from Rs 125 crore in the previous quarter.
Cigarette: Mainstay business
The company's multi-channel distribution network comprises convenience outlets, traditional channels, and stockists' networks. Rural Servicing infrastructure and rural stockists network were scaled to 1.2X and 3X compared to the same period year ago. Certain regions are still impacted, partially. The major problem of the wide availability of smuggled cigarettes continues despite actions by concerned authorities. ITC said that the impact on sales was felt more in metro cities and towns and in Southern markets. But cigarette volumes have gone back to near their pre-pandemic levels. Sales of cigarettes amounted to Rs 5122 crore, up by 33% over a year ago. The Profit Before Tax for this segment grew 37% on-year to 3,221 crore, making up 85% of the PBT.
The hotel segment saw a recovery in the October to March period, however, the second wave has impacted the recovery. Home delivery and takeaway offering are operations in 17 cities across 24 ITC properties. The Hotels Business reported a loss of Rs 151 crore in the quarter. This was the only loss-making segment.
The company saw strong growth in rice, wheat, and leaf tobacco exports and high soya demand in the domestic market. Spices exports continue to grow for the company. The company said, 'Restrictions in operations at mandis and auction platforms were countered by leveraging multiple sourcing models and multi-modal transportation networks.' Agri business segment revenue for this quarter was Rs 4,091.27 crore, up by 9.2%. However, the profit growth was a mere 9.5% on-year to Rs 196 crore (before tax).
Paper & Paperboards
This segment was mixed for the company - some product sales increased while some were impacted by the lockdown. Pharmaceuticals and consumer goods saw an increase in the domestic sales numbers, while end-user segments such as cupstock, publications, on-the-go liquid packaging, and wedding cards saw a decline in numbers. Paperboard revenues reported was Rs 1,583 crore, up 54%. This was the fastest growing segment, with PBT up 145% on-year to Rs 393 crore.
ITC quarterly results: review
ITC has reported a good set of numbers in the Apr-Jun 21 period. Despite Covid-19 related disruptions, demand in FMCG and agri business remained resilient. Inflationary raw material prices led to a contraction in gross margins, but operating profit remained healthy due to cost savings and judicious price hikes.
While the company has been trying to reduce dependency on the Cigarette business and increase its focus on the FMCG segment, the Cigarettes business is likely to contribute over 82% to ITC’s overall EBIT even in FY23E (from 85% in FY20), according to estimates by Motial Oswal. Given the over-reliance on this segment, ‘sin taxes’ will remain a key overhang on the firm. If the government is unable to meet its revenue targets through taxation, it may need to continue to lean on taxing “sin goods”, such as cigarettes.
ITC results: Brokerage view
Most of the brokerages have retained their bullish view on the stock. Jefferies has a target price of Rs 275 on the stock. Emkay has a target of Rs 270 on the stock. Edelweiss has Retained ‘hold’ with a sum-of-the parts based target price of Rs 241 apiece. ITC shares ended 0.64% lower at Rs 211.05 on Monday.