ITC rating – Buy: Recovery process was sustained

Agri revenues grew strongly, up 79% y-o-y. Ebit margin declined 90bps y-o-y, with Ebit up 54% y-o-y.

ITC witnessed a sequential enchancment on cigarette quantity in Q4FY21 with c.7% y-o-y development (according to consensus; under JEFe). FMCG continued to witness robust development charges together with margin enchancment; lodges was expectedly weak whereas agri & paperboards’ Ebit was forward. Ongoing Covid-19 induced restrictions proceed to cloud near-term outlook significantly on cigarette volumes though we anticipate a restoration throughout H2FY22. We minimize FY22 EPS by c.4%; BUY.

This autumn present: Op. Ebitda grew 7% y-o-y to Rs 44.7 bn, 4% under our estimate though largely according to consensus. On a 2-yr CAGR, Ebitda fell 1%. Pre-ex earnings grew 8% y-o-y to Rs 37.5 bn, which was 4% under.

Cigarette quantity miss: Web revenues grew 7% y-o-y, after declining for 4 consecutive quarters, aided by robust restoration in metros and enormous cities. Cigarette volumes had been up 7-8% with Ebit rising 8% y-o-y, 5% under estimates. On a 2-year CAGR, each volumes and Ebit declined 2%. Volumes recovered again to close pre-Covid ranges in direction of end-FY21; nonetheless, second Covid wave has introduced up challenges as a result of constraints in no. of working retailers and restricted hours of operations.

FMCG development robust: FMCG income grew at 16% y-o-y, albeit contains consolidation of Dawn Meals. Adjusted for Dawn, stationery & life-style enterprise, income development stood at 16% (vs. 11% in Q3). FMCG Ebitda margin expanded 30bps y-o-y to eight.3% (down 90bps q-o-q). Adjusted for Dawn consolidation, stationery & life-style enterprise, Ebitda margin expanded 115bps y-o-y with section Ebitda up 19%.

Inns: Inns income continued to get better, up 22% q-o-q. On a y-o-y foundation, income declined 38%.

Agri: Agri revenues grew strongly, up 79% y-o-y. Ebit margin declined 90bps y-o-y, with Ebit up 54% y-o-y.

Paperboards: Income grew 14% y-o-y (vs. 5% decline in Q3). Section Ebit grew 13% y-o-y with margin flattish at 19.5%.

FY21 efficiency: ITC noticed a 9% EPS decline in FY21, with cigarette Ebit declining 14% and an over Rs 5 bn+ Ebit loss in lodges. FMCG enterprise nonetheless did effectively, with income development of 15% and Ebitda up 44% (34%, ex-Dawn).

Dividend: ITC declared a Rs 5.75 ultimate dividend, after an interim dividend of Rs 5 declared in Q3. At Rs 10.75, payout stood at a wholesome 102%.

Lower EPS: Whilst This autumn noticed a sustained restoration, second Covid wave creates near-term uncertainty on cigarette quantity restoration. We accordingly minimize our FY22 EPS estimate by 4% (minor change in FY23). Preserve Purchase with unchanged PT of Rs 270.