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Published: May 24, 2024
Updated: May 24, 2024

ITC Q4FY24: Hits and Misses, Hotel Business Demerger, and Stock Price Projections

Q4 Performance Analysis:

ITC's fourth-quarter results for FY24 presented a mixed picture, with some segments performing well while others lagged behind expectations. Analysts noted positive outcomes in the Hotel and FMCG - Others segments but expressed concerns over the cigarette business's declining margins due to rising tobacco prices and increased taxes. The overall performance for FY25 is expected to be affected by inflationary pressures in the cigarette segment, a subdued outlook for the agri-business, and a downturn in the paper business.

Segment-Wise Performance
Cigarettes:

ITC's cigarette business saw an estimated volume increase of 2%, aligning with expectations. However, the segment experienced a significant margin contraction due to higher tobacco costs and elevated tax rates.

Agri-Business:

The agri-business faced revenue and profitability challenges, reflecting a weaker performance compared to previous quarters. Better monsoon seasons could improve this segment's prospects and its cigarette margin outlook for FY26.

Paper Board:

The paper board segment also showed a decline in revenue, contributing to a less favourable overall performance for ITC.

Hotel Business:

The Hotels segment stood out with robust performance, achieving its best-ever quarter. Segment revenue increased by 15% year-on-year (YoY), and EBITDA margins expanded by 340 basis points to 38.2%, driven by higher revenue per available room (RevPAR), operational leverage, and strategic cost management.

FMCG - Others:

The FMCG - Others segment saw a 7.2% YoY revenue growth, supported by various categories such as staples, biscuits, snacks, dairy, homecare, agarbatti, and education products. EBITDA margins in this segment improved by 94 basis points to 11.6%, aided by premiumization, supply chain efficiencies, strategic pricing actions, digital initiatives, and cost management.

Analysts' Perspectives:

Emkay Global highlighted the mixed performance in Q4, noting the stress in cigarette margins and the muted show in non-cigarette businesses. The firm revised its sum-of-the-parts (SoTP) based target price to ₹510 per share.

Brokerages pointed out that ITC's Q4FY24 results fell slightly below expectations across the board, particularly in Cigarettes, Agri, and Paper Board segments. The brokerage maintained a 'Buy' rating with a target price of ₹520, citing ITC's potential for healthy medium-term earnings growth and impressive return ratios.

Hotel Business Demerger:

ITC has moved forward with the demerger of its hotel business, having filed the Scheme of Arrangement with the National Company Law Tribunal (NCLT). The NCLT has directed ITC to convene a shareholder meeting on June 6 to consider and approve the scheme. The company is targeting 27 new hotels in the next 24 months, reflecting a healthy pipeline and strategic growth ambitions.

Future Outlook and Concerns:

While the FMCG - Others segment continues to show growth through multiple new launches, the cigarette business is expected to experience low-to-mid-single-digit volume growth for FY 25/26 due to subdued demand. High raw material inflation and rupee depreciation remain significant concerns for the company.

ITC's Q4FY24 results highlight a mixed performance with notable strengths in the Hotel and FMCG - Others segments, contrasted by challenges in the cigarette, agri, and paper businesses. The company's strategic initiatives, including the demerger of the hotel business and continued focus on new product launches, are poised to drive future growth. However, the inflationary pressures and subdued demand in key segments warrant cautious optimism for FY25.