Analysis of ITC Ltd Q1 FY2019-20 Results

Introduction

ITC Ltd Q1 FY20 results were released on 2nd August, 2019. The company has seen a rise of 12.6 percent Y-o-Y in net profits. Lets review the Q1 results in detail in this article.

ITC Ltd Q1 FY20 Results Update

Q1 FY20 Standalone Results Update

ITC Q1 FY2019-20 Results Update
  • Revenue from opearations during the quarter Q1 FY20 grew 5.8% YoY to Rs.11,502.82 Cr from Rs.10,874.59 Cr. On Q-o-Q basis, the operational revenue fell 5.8% from Rs.12,206 Cr.
  • Company’s other income shot up 53.6% to Rs 620.2 Cr compared to corresponding period last year Q1 FY19 from Rs.404 Cr. But this other income has reduced by 16.2% from 740 Cr in Q4 FY19.
  • Total expenses increased by 4.8% to Rs.7,311 Cr versus Rs.6,978 Cr in Q1 FY19. But on Q-o-Q basis total expenses are reduced by 8.5% from Rs.7,992 Cr.
  • Operating profits are increased by 8.65% Y-o-Y to Rs.4,566 Cr from Rs.4,202 Cr, while growth was flat for Q-o-Q. Operating margin expanded 110 basis points (bps) at 39.7% on a yearly basis.
  • Net Profits are increased by 12.6% Y-o-Y to Rs.3,173.94 Cr in Q1 FY20 from Rs.2,818.7 Cr in Q1 FY19. As far as quarterly growth is concerned, net profit has seen a fall of 8.8%.

ITC Ltd Q1 FY20 revenue mix

The Company’s corporate strategy aims at creating multiple drivers of growth anchored on its core competencies. The Company is currently focused on four business groups : FMCG, Hotels, Paperboards, Paper & Packaging and Agri Business.

ITC Ltd Q1 FY20 Revenue Mix
ITC Ltd Q1 FY20 Revenue Mix
  • FMCG segment revenue increased 6.19% to Rs 8,493 crore.
    • The conglomerate’s flagship cigarette business Revenue rose 6% to Rs 5,433.40 crore, which contributes almost 64% of total FMCG revenue. The performance during the quarter was impacted by weakness in overall demand apart from the challenges to the legal cigarette industry due to high taxation and regulatory regime. 
    • The non-cigarette FMCG business which comprises of packaged food, personal care and stationary, reported 6.6% growth in gross revenue at Rs 3060.05 Cr.
    • FMCG EBIT margin expansion was driven by enhanced scale, product mix enrichment and cost management initiatives notwithstanding higher investments in brand building and gestation costs of new categories.
  • Agri-business revenue rose 14.6% to Rs 3,611.23 crore. The muted growth was due to subdued demand for leaf tobacco in international markets, steeper depreciation in currencies, limited trading opportunities in oilseeds and pulses.
  • ITC operates the country’s second largest hotel chain. Hotel business segment’s revenue up 15% at Rs 392.6 crore.
  • Paperboards, paper and packaging segment posted 12.6% jump in revenue at Rs 1527.53 crore driven by strong growth in value-added paperboards segment and product mix enrichment. However, the packaging and printing business was impacted by slowdown in the FMCG industry and exports. 

Effect of Q1 FY20 Results on Market Cap

Before the declaration of the Q1 result, the market cap of ITC Ltd was Rs.3.24 Lakh Cr on 2nd August. While after releasing the Q1 FY20 results, market cap has reduced to Rs.3.18 Lakh Cr.

Conclusion

  • The growth of India’s FMCG industry, is declined for the second straight quarter in the Q1 FY20 (April-June) period according to Nielsen India.
  • ITC’s FMCG revenue growth was in-line versus its FMCG peers such as HUL, Dabur, Marico etc.
  • Slowing rural spends were a drag on domestic consumer goods makers. As the rural growth is moderated, the volume sold for last few quarters is rising at the slowest pace.
  • Apart from weakened demand, challenges to the legal cigarette industry due to high taxation and regulatory regime also impacted ITC’s flagship cigarettes business.
  • The legitimate cigarette industry is declining steadily since last few years. Also high tax rates on cigarettes provide attractive tax arbitrage opportunities for unethical players which triggers the growth of illegal cigarette trade in the country. It is also impacting the ITCs business growth from its key segment.

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