ITC Q4FY22 results: Surprising growth across verticals

ITC Limited has a diversified presence in tobacco, FMCG, Hotels, Packaging, Paperboards, Agri Business, and Information Technology. The FMCG segment includes branded packaged foods businesses, education and stationery products, personal care products, safety matches and agarbattis and apparel. ITC is the market leader in the cigarettes segment in India.

 

Data as on 19 May 2022

 

The market reacted to the results with ITC trading 3% higher post the announcement of the results. The results were above the market expectations and a recovery across most verticals gives confidence for the next quarters.

It is also important to note that while most stocks have been falling over the last month and a half, ITC has been rising and touched its 52 week high after the Q4FY22 results on 19^th May 2022.

 

ITC gains 3% in a day post announcement of Q4FY22 results

 

Key Highlights

• Consolidated revenue up 15.7% YoY at Rs 18,252 crore in Q4FY22
• FY22 revenue and EBITDA up YoY by 22.7% and 22.0% respectively, surpassing pre-pandemic levels
• Re-opening of educational institutions aids recovery in Education & Stationery Products Business, yet to touch pre-pandemic levels
• Robust broad-based recovery in Cigarettes despite disruptions due to the third wave with volumes surpass pre-pandemic levels
• Sharp growth in Q4FY22 Agri Business Segment revenue up 29.6% YoY driven by wheat, rice, leaf tobacco exports
• Hotels witnessed recovery despite the third wave impacting recovery momentum in January. Occupancies surpass pre-pandemic levels 
• Paperboards, Paper and Packaging Segment delivers strong performance; Q4 Revenue up 31.8% YoY.

Growth to be driven by all verticals

Brokerages believe that ITC will sustain this volume growth momentum in Q4FY22, backed by no tax hike in the Union Budget 2022 on the cigarettes, which will support the company in competing with illicit cigarettes. Moreover, the decline in Covid-19 cases has resulted into increased mobility (opening of offices, public places) supporting higher consumption.

 

Consolidated revenues grow 15.7% YoY in Q4FY22

 

The Russia-Ukraine war has resulted in sharp inflation in wheat prices (up 18-20% YoY) in Q4FY22 as both countries account for about 25% of the global wheat supplies. Soaring wheat prices and volume growth will benefit ITC in coming quarters also.

 

Revenues grow 29% YoY in FY22 to an all time high of Rs 67,041.3 crore

 

Commenting on the Q4FY22 results, the management said that after a challenging FY21, and despite repeated disruptions this year, the business progressively recovered on the back of improved mobility and easing of restrictions, surpassing pre-pandemic levels in the latter half of the year. The business effectively leveraged institutional strengths, digital technologies and learnings from previous waves to respond with agility across all nodes of operations.

 

Rising raw material costs impacts operating profit margins in Q4FY22

 

In FY22, ITC consolidated its pre-eminent position as the largest Indian exporter of unmanufactured tobacco, improving its market share by about 300 bps. However, it faced severe challenges in exporting other commodities due to shortage of containers. Severe shortages in container availability, congestion in ports and steep increase in freight rates exacerbated the situation.

 

EBIT margins declining over the last two years with EBIT margins of 33.6% in FY22

 

Conclusion:

ITC has beaten all the market estimates and reported growth in all the verticals. The growth can be seen in all the businesses from cigarettes to FMCG, Hotels to Paperboards and agri-business. The sales growth, revenue and EBIDTA all are above expectations. The results of strategy reset made by chairman Sanjiv Puri is now visible across verticals, as all the verticals have performed above expectations.

The stock has a buy rating from most brokerage houses with an estimated target of 340, which would be 23% higher than its current market price.