Dip in cigarette volume impacts ITC’s growth in Q3FY24

Dip in volume offtake of cigarettes business and decline in revenue from paperboard and agri businesses impacted ITC Ltd’s growth during the October-December quarter. Experts are, however, of the view that the dips are momentary and the respective businesses are set to bounce back in the near-term.

During the quarter, cigarette business declined 2% year-on-year by volume on high base and due to sluggish consumption trends, said Kunal Vora, Head of India Equity Research at BNP Paribas India. In the same quarter previous year, the cigarette volumes had surged by 5%. “While volumes disappointed in Q3FY24, we expect volume growth to recover to 3-4% in FY24 unless taxes on cigarettes are raised sharply. Revenue growth was positive due to improved mix and slight price hikes,” he said. Cigarette operating profit rose 2.3% y-o-y compared to over 8% in Q2FY24.

“Market standing reinforced through focused portfolio/market interventions & agile execution with differentiated and premium offerings continuing to perform well. ITC sustained volume claw back from illicit trade on the back of deterrent actions by enforcement agencies and relative stability in taxes,” said Abneesh Roy, Executive Director, Nuvama Institutional Equities, adding that the segment witnessed consolidation on a high base after enjoying a period of sustained growth momentum.

According to ITC, the [cigarette] business “continues to counter illicit trade and reinforce market standing by fortifying the product portfolio through innovation, democratising premiumisation across segments and enhancing product availability backed by superior on-ground execution”.

During the quarter, revenue from the cigarettes business declined to Rs 8,295 crore from Rs 8,328 crore in the December quarter of 2022. While agri business revenue fell 18% year-on-year to Rs 3,273 crore - down from Rs 3,988 crore. In the paperboard, paper and packing segment revenue skid marginally to Rs 2,081 crore from Rs 2,070 crore.

According to the company, for its agri business “the operating environment remained challenging due to various policy interventions of the Government of India to ensure food security and control inflation which limited business opportunities for the agri business”. Excluding the wheat & rice business, the agri business revenue grew by 14.2% y-o-y driven by value added agri products & leaf tobacco, it said.

While its hotels and non-cigarettes FMCG businesses grew steadily during the quarter, poor show on the other three segments - including the largest revenue contributor, i.e., cigarette business - impacted ITC’s financial performance during the quarter. Its operating revenue grew by 2.4% y-o-y to Rs 19,484 crore, while it net profit surged 6.5%.