Q2 Reports: As ITC’s FMCG, Agri-Business Picks Up, Decline Continues For Cigarettes And Hotels

ITC’s revenue growth of about 25 per cent comes from the essential category of atta and personal wash among others is quite good even as discretionary sales declined 2 per cent.

The fast-moving consumer goods (FMCG) business of ITC Ltd saw a growth of 15.4 per cent as compared to the last year same time also known as year-on-year. With a huge hike in the sales of FMCG business, the firm also registered a fall of 3.9 per cent y-o-y in its cigarette business, one of the main business from which the firm was established. The ITC stock, which is hit by global environmental, social, and governance norms in its cigarette business, is down 29 per cent from its pre-covid highs.

ITC’s revenue growth of about 25 per cent comes from the essential category of atta and personal wash among others is quite good even as discretionary sales declined 2 per cent. This shows ITC’s FMCG business is able to push itself in the competitive market.

Its FMCG Ebitda margin stood at about 8.7 per cent in the first half of FY21. This also brings the firm closer to its target of achieving 10 per cent Ebitda margin by FY23. Ebitda is earnings before interest, taxes, depreciation, and amortization. One basis point is one-hundredth of a percentage point.

The slow recovery of the Cigarette’s business after the re-opening post-Covid-19, the sale volume was down by 12per cent as per the reports from the Q2. Cigarette’s volume decline could be lower than peers in the coming months, but it could still take a while before it reaches pre-covid levels. That’s likely to keep cigarette margins subdued in Q3.

Other than the Cigarettes, ITC’s hotels business has also been hit by the covid-19, with revenues down by 81per cent y-o-y. While cost reductions and improving occupancy lately is good, a turnaround here is still a few quarters away. Paper board revenues also declined by 6.8 per cent y-o-y.

However, ITC’s agri-business is showing growth. This division’s sales were added up by 12.8per cent as value-added business growth has been good. ITC launched several variants of its frozen snacks and vegetables.

Overall, revenues fell during the quarter, squeezing the Ebitda margin by about 280 basis points over the year-ago period. Nevertheless, dividend yields remain good at 4-5 per cent. Even so, short-term hiccups are likely to continue.