Monopoly Stock in Tobacco Industry

Despite the fact that over the past century the business has expanded to become a conglomerate. Despite this, its cigarette industry maintains a solid 77% market share in India. This may be ascribed to the company's competence in the industry and desire to create items that suit the changing preferences of various customer groups.
Insignia, India Kings, Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal are just a few of the many brands offered by ITC. Besides having expertise in the industry, the brand also benefits from a nationwide supply chain and distribution network.

Key Operational Highlights

1. FMCG Growth: Robust FMCG performance; FMCG - Others segment revenue exceeded Rs. 5,000 crores in a quarter for the first time, up 16.1% YoY.
2. Cigarettes Segment Resilience: Continued strong performance in Cigarettes segment with net segment revenue up 10.9% YoY; sustained volume recovery from illicit trade.
3. Hotel Business Success: Hotels segment achieved best-ever Q1, segment revenue grew 8.1% YoY, and segment PBIT increased by 17.0% YoY; strong growth in ARRs and strategic cost management.
4. Agri Business Success: Agri Business segment revenue up 31% YoY (excl. wheat exports); strong growth in Leaf Tobacco & Value Added Agri products despite geopolitical tensions affecting wheat and rice exports.
5. Paperboards & Packaging Challenge: Paperboards, Paper & Packaging segment faced subdued demand, sharp reduction in global pulp prices, and high-base effect; segment revenue declined 6.5% YoY.

Financial Performance

1. Gross Revenue and Profit: Gross revenue at Rs. 16,843 crores, representing a YoY de-growth of 7.3%; PBT at Rs. 6,546 crores, up 18.2% YoY; PAT grew by 17.6% YoY to Rs. 4,903 crores.
2. FMCG Segment Success: FMCG segment revenue grew 16.1% YoY to Rs. 5,166 crores; strong growth driven by various product categories including Staples, Biscuits, Noodles, Beverages, Dairy, and premium Soaps.
3. Cigarettes Segment Performance: Cigarettes segment recorded net segment revenue growth of 10.9% YoY; volume recovery from illicit trade, stability in taxes, and product innovation reinforced market standing.
4. Hotel Business Prosperity: Hotels segment achieved best-ever Q1 with strong growth in ARRs and robust segment PBIT growth of 17.0% YoY; elevated EBITDA margin at 33.9% due to higher RevPAR.
5. Agri Business Resilience: Agri Business revenue up 31% YoY, excluding wheat exports; strong performance driven by agile execution and value-added Agri products.

Key Risk

External Challenges: Global economic slowdown, inflation, interest rates affecting Advanced Economies; challenges from geopolitical tensions, commodity price volatility, and food security concerns remain significant.

Outlook

1. Positive Indian Economic Trends: Indian economy resilient with buoyant tax collections, moderating inflation, and credit growth uptick; incipient signs of consumer demand recovery.
2. FMCG Growth Strategy: Continued FMCG growth with premiumization, supply chain optimization, judicious pricing, digital initiatives, cost management, and fiscal incentives.
3. Market Standing Reinforcement: Cigarettes segment to sustain growth through deterrent actions against illicit trade, tax stability, and agile execution.
4. Hospitality Expansion: Hotels business aims to maintain momentum by curating offerings, focusing on RevPAR, digital enhancements, and strategic cost management.
5. Agri Business Evolution: Agri Business focused on value-added Agri products, tobacco adjacencies, and leveraging rural linkages; overcoming challenges posed by geopolitical tensions.
6. ITC Ltd's focus on innovation, customer-centricity, digitalization, and cost-effective measures across its diverse segments is expected to drive sustained growth and reinforce its position as a responsible and resilient enterprise.

Macro-Economic Environment

• Global Economy remains weak

1. 2023 Global GDP growth estimated. at 3.0% (Vs. 3.5% in 2022)

a. Deceleration mainly in Advanced Economies
b. Chinese economy extremely sluggish after a good start; structurally weaker

2. Major central banks continue to tweak policy rates to combat inflation, weighing on growth

a. Commodity prices easing off after hyperinflation in LY; elevated volatility levels
b. Extreme weather events & geo-political events pose risk to inflation

• India remains relatively better placed but growth to be lower than FY23

1. FY24 GDP expected to grow by 6.5% (vs 7.2% in FY23).
2.  Inflation in FY24 expected to drop to ~5.4% Vs. 6.7% in FY23
3. Food inflation witnesses sharp spike in Jun’23.
4. External Trade softer in Q1; exports ~14% lower YoY.
5.Green shoots in Rural demand; overall demand, however, remains a key
Monitorable.
6. Consumer sentiments improving but below pre-pandemic levels.

• Key Positive

1. Moderating Inflation
2. Buoyant tax collections
3. Credit growth uptick
4. Resilient Economy

• Key Monitorable

1.    Slowdown in global growth impacting external trade
2.    Consumer demand & Volume growth
3.    El Nino impact on Monsoon / Agri Output
4.    Private capex yet to pick up

• Segment Results Q1 FY24