Rise in FMCG Margins a Major Positive – Just Another Investor

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The revenue for ITC during Q2 Fiscal 2021 grew by 1.7% on-year to INR 137 Billion aided by robust 19% on-year growth in FMCG (Ex-Cigarettes) business. The Profit After Tax however dropped by ~18% on-year due to INR 193 Crore loss in hotels business. Without considering the hotels segment, the operating profit for the company dropped by ~8% on-year primarily on account of ~16% on-year drop in profits in Cigarettes business (Click here to read our detailed report on the company)

Decent ramp up in Quarterly performance across segments except Hotels

Source: Company Filings

  • The EBITDA margin dropped by ~400 bps to 36.3% especially on account of loss in Hotels business due to Covid-19; further, the margins for Cigarettes business also dropped by 860 bps on-year to 60.6% due to localized lockdowns
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Cigarettes business clawing its way back to pre-Covid levels; FMCG registers robust growth

Source: Company Filings

  • Without considering the hotels segment, the revenue for the company increased at 5.2% on-year during Q2 Fiscal 2021

Substantial boost in Margins for FMCG segment

Source: Company Filings

  • The margins for the FMCG -Others segment reported substantial gains, which is likely on account of performance of company’s personal care products (Savlon range of products)
  • The company’s ability to sustain this margins going forward will be a key monitorable

Trend in FMCG margins for the company over last 6 years

Source: Company Filings

  • ITC has been able to ramp up its FMCG – Others (Ex-Cigarettes) margins consistently from fiscal 2017 onwards which is a positive for the company
  • However, the segment is still in a relatively nascent stage with the company still carrying out substantial investments in strengthening supply chains and new brand launches
  • During H1 Fiscal 2021, the company launched over 70 new products

What to Expect Going Forward

  • The key monitorable going forward would be the company’s ability to sustain its margins in the FMCG segment; the company would have likely benefited substantially in its Savlon range of products due to Covid-19 during H1 Fiscal 2021
  • Further, the prospects of hotels business in H2 Fiscal 2021 will depend on the effectiveness of the Government’s measures in curbing the spread of Covid-19; if there are further lockdowns going forward, the hotel segment may continue to dent profitability for the company
  • At INR 174 per share, the company is valued at ~15.6X TTM Earnings which looks very reasonable
  • However, ESG philosophy adopted by many global funds may act as a deterrent in the company achieving its fair value
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About Social Media’s Addiction to ITC

  • At current valuations, the stock is certainly not a ‘Sell’, but a ‘Buy’ Call on ITC is mostly met with lot of memes on social media
  • One does not generate profits through comments on twitter; study the stock well and if you are convinced, buy the stock and sleep peacefully
  • Beyond what is available on public domain there is only so much that an investor can know about the company

HAPPY INVESTING!!



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Saurabh Prabhu
Stock Market. Cricket. F1 Enthusiast. Private Equity Professional . Ex- Crisil.
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