ITC’s Q1 performance alone unlikely to fire up stock | Economic Times

ET Intelligence Group: ITC’s June quarter performance has been on the expected lines with a sharp jump in growth of revenues and net profit over the stunted levels in the prior year due to nationwide lockdowns. On the other hand, there has been deterioration in performance on a sequential basis due to a second wave impacting the quarter.The impact of input cost inflation was starkly prevalent with raw material cost growing faster than the increase in revenues and rising steeply at 48% of the revenue, compared with 45% a year ago. At ₹429 crore, the other income was the lowest in the past 12 quarters – having a direct impact on the bottom line. At 32.9%, the operating margin was 300 basis points (bps) higher over the prior year but 110 bps lower than the preceding March quarter.FMCG and agri business were the only two segments of the conglomerate to report increased growth even on a sequential basis. Revenues of the FMCG business, its most promising line, climbed 10% over the previous year and a percent over the preceding quarter. However, the segment’s profitability couldn’t project the same trend with margins rising 90 bps on-year but dropping 50 bps sequentially. 84741038The strong performance posted by the paper business – driven by higher realisations, better product mix and cost containment measures – was another encouraging sign. Growth momentum of the agri business was driven by exports. The cigarettes and hotels businesses, however, bore the brunt of the second wave. Cigarette revenues and profit dropped around 12% each over the preceding March quarter. The business is recovering faster than the first wave. The hotels business, while in a better shape since a year ago, has suffered halving of revenues and increased losses over the preceding quarter due to localised lockdowns. As the restrictions ease and the situation improves, the cigarettes business is posting a faster week-on-week recovery than that seen after the first wave. The hotels business is rebounding with attractive package deals and staycations. The adverse impact of the second wave on discretionary and out-of-home consumption has been lower compared to the first wave. E-commerce sales more than doubled over the previous year. The ITC stock closed 2.6% higher on Friday, a day ahead of the results, as the Street may have factored in the high growth numbers of June quarter on back of a low base. However, it will be difficult for the stock to sustain the positive momentum. Overall, ITC’s first quarter performance fails to provide any further direction to the price. Factors such as the demand situation in the current quarter, improvement in mobility, sale of government’s stake in the company and company’s inorganic expansion, if any, can potentially provide fresh direction to the ITC stock that has been languishing at the current levels for the past eight months.