ITC Q4 Results Review - Budget, Cigarette Volumes Key To Returns: Prabhudas Lilladher

Prabhudas Lilladher Report

ITC Ltd.'s Ebitda de-grew by 0.8% on ~2.1% volume growth and 160 basis points YoY and 50 bps QoQ margin decline in cigarettes due to higher leaf tobacco prices and only calibrated price increases and pricing and input cost inflation in paper business. FMCG Ebitda margins of 11.6% (15% Ebit de-growth ex of PLI gains in Q4 FY23) whereas 33.8% Ebit growth in hotels have been positive.

Demand scenario remains mixed with mass segment under pressure across cigarettes and FMCG. We expect ~4% cigarette volume growth in FY25/26 in a steady state while FMCG will continue to expand margins by ~80-100bps annually.

Although hotels have, a high, base, strong demand will continue to drive growth. We expect paper margins to improve post Q2 only given high base in Q1 and tough operating environment. Agri business margins will expand in H2 FY25 only due to high leaf tobacco prices.

We are largely retaining our estimates and estimate 7.3% EPS CAGR over FY24-26. ITC trades at 26 times FY26 EPS with return on equity/return on capital employed of 31.1/41.2% and ~75%+ dividend payout.

We assign SOTP based target price of Rs 491 (Rs 488 earlier) as we roll forward to FY26. We expect returns to be driven by cigarette volume numbers and budget outcome in July. Retain Accumulate.

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