ITC reported a 38 per cent year-on-year (YoY) growth in its consolidated net profit, which came in at Rs 4,169 crore, amid growth across segments. In the year-ago period, profit stood at Rs 3,013 crore. Net sales came in at Rs 18,164 crore, up 41 per cent YoY and well ahead of expectations. Operating margins remained flat at 30.8 per cent. The company attributed the performance to a “robust” performance across segments.
While the trajectory of inflation remains a key monitorable, prospects of a favourable monsoon and the recent moderation in prices of key commodities along with proactive interventions by the Government and the Reserve Bank of India (RBI) augur well for sustained economic recovery and a pick-up in consumption expenditure, ITC said in a press release.
After many quarters of disruption & lacklustre growth, ITC has witnessed robust growth across segments. We believe the company would be able to continue to grow in high single digit in cigarettes & log a double-digit growth in all the other segments going forward. We remain positive on growth prospects, ICICI Securities said in a note.
Barring the Agri business, where the ban on wheat exports may result in relatively muted growth in subsequent quarters, momentum in other businesses is expected to remain robust. We have turned constructive on the stock, led by a better than expected demand recovery and a healthy margin outlook in Cigarettes, robust sales momentum in the FMCG business, lower drag from the Hotels business, and better capital allocation in recent years, Motilal Oswal Financial Services said.
A stable tax environment for Cigarettes in recent years has allowed ITC to calibrate price increases to avoid a disruption in demand. The brokerage firm expects this trend to continue and result in improved Cigarette volumes and earnings visibility over the medium-term.
Meanwhile, ITC’s stock has rallied 45 per cent year to date (vs 13 per cent plus for Nifty FMCG Index), beating its peers by a wide margin, due to rotation to high dividend yield stocks amid increasing risk aversion, rising interest rates and inflation fears, significant underperformance in the past (hence a formerly appealing valuation), and prospect of a recovery in cigarettes volumes and earnings as the economy opens up.
Analysts at HSBC Securities believe that the stock rally has priced in rich expectations of most businesses barring cigarettes which the brokerage firm believe is past its structural growth phase.
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