ITC

After a base quarter adversely affected by the second Covid wave, ITC share price has reported an unusually excellent performance for the quarter ending in June, powered by double-digit growth across all its business verticals.The typically largest category, cigarettes, saw a significant rebound, with volumes exceeding those before the epidemic. A consistent tax structure, the company’s introduction of new products, and governmental oversight of illicit cigarettes made this feasible.

Compared to the other income streams, the FMCG sector closely studied had modest growth. Except for hygiene products, which were muted, the categories of discretionary, out-of-home, education, and stationery goods all did well.E-commerce and current trade have both contributed to its growth.

In terms of income, the Agri category led to rice, wheat, and leaf tobacco exports. The type of paperboard and packaging also performed well thanks to robust demand and more significant realisations, which improved profitability.The hotel industry also saw a robust rebound, surpassing pre-pandemic revenue levels because of increases in average room prices and occupancy levels.

The business has a strong pipeline of properties that will be opened in phases throughout the upcoming quarters.

  • Despite commodity inflation, the segment’s Earnings per share increased from 5.9% in the June quarter of FY20 to 7.8% in the most recent quarter.
  • Although the cost of commodities increased the gross margins, the EBDITA remained constant at 32.7% yearly. The demand in rural areas has remained muted. Normal monsoon and improved attitudes indicate that the second half will pick up.
  • On Monday, the ITC share price reached a fresh 52-week high of $308.80 before the firm released its June quarter results.
  • The stock has increased 40% so far this year.
  • The Street had anticipated a good first quarter performance, but the better-than-expected results will surely give the store a new boost.
  • The stock is 20% below its all-time high. The likelihood that the corporation would announce the divestiture of its hotel division is also expected to maintain the euphoric mood.

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Conclusion

The company is anticipated to return to single-digit growth in its cigarette business and double-digit growth in the other divisions starting in the second half of this fiscal year.The domestic brokerage is bullish on the ITC share price due to several factors, including the likelihood of cigarette price increases ahead of the upcoming budget, the company’s food business’s strong performance and improved profitability, the closing valuation gap, the improving outlook, and the potential for the hotel business to be demerged.

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Additionally, the brokerage predicts a favourable tax structure. It reiterates that “the government is likely now able to understand better the legal industry’s logic that a punitive taxation regime on legal cigarettes alone does not necessarily help control tobacco use in the country, rather causes migration to cheaper forms of tobacco.” The brokerage thus anticipates double-digit EBIT growth for cigarettes in FY23 due to the relatively stable tax structure and significant volume increase.

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