ITC Q3 results: Profit down, revenue up, hotels shine

ITC Q3 results: Profit down, revenue up, hotels shine
  • ITC's Q3 net profit fell 7% YoY.
  • Revenue rose 8% YoY to Rs 20,350 cr.
  • Hotels segment showed stellar performance.

ITC Ltd., a diversified conglomerate, announced its financial results for the third quarter ended December 31, 2024, revealing a mixed performance. While the consolidated net profit experienced a 7% year-on-year (YoY) decline to Rs 4,935 crore, compared to Rs 5,335 crore in the same period last year, the company's revenue demonstrated robust growth, increasing by 8% YoY to reach Rs 20,350 crore. This indicates a scenario where increased sales volume and pricing strategies haven't entirely offset the impact of rising input costs and potentially subdued market demand. The board's decision to recommend an interim dividend of Rs 6.5 per share for the financial year 2025 suggests confidence in the company's long-term prospects, despite the current quarter's challenges. The company attributed the resilient performance to strategic navigation amidst a complex economic environment marked by subdued demand and escalating input costs.

A closer examination of the segment-wise performance reveals a contrasting picture. The cigarette business, a core component of ITC's operations, registered an 8% growth in revenue, with a 4% YoY increase in profit before tax (PBT). This growth indicates success in strategic portfolio and market interventions, which included efforts to counteract illicit trade and focus on competitive market segments. Despite this success, the impact of rising leaf tobacco costs is apparent, highlighting the challenges associated with managing costs in a volatile agricultural commodity market. The company's actions to mitigate this through improved product mix, calibrated pricing, and cost management initiatives demonstrate proactive management.

The hotels business, however, emerged as a star performer. With revenue surging 15% YoY to Rs 922 crore, despite a challenging high base from the previous year, it achieved a remarkable 43% YoY increase in profit before tax, reaching Rs 302 crore. The demerger of the hotels business into ITC Hotels, effective January 1, 2025, signifies a strategic restructuring move to potentially enhance operational efficiency and market focus. The significant expansion of EBITDA margins by 450 bps YoY is primarily attributed to improved revenue per available room (RevPAR), operating leverage, and cost management measures, pointing to successful optimization of operational capabilities within the hotels division.

The FMCG (Fast-Moving Consumer Goods) segment delivered a respectable performance considering the muted demand conditions. Revenue rose by 4% YoY to Rs 5,418 crore, driven by strong contributions from product categories like atta, spices, snacks, frozen snacks, dairy products, premium personal wash products, homecare items, and agarbattis. This suggests success in catering to consumer preferences even amidst inflationary pressures. The company effectively navigated severe inflationary headwinds impacting essential inputs such as edible oil, wheat, maida, potatoes, and cocoa by strategically managing costs, employing calibrated pricing adjustments, and emphasizing premiumization strategies. Maintaining competitive marketing investments, despite the short-term pressure from inflation, further underscores ITC's commitment to long-term growth.

In contrast to the stronger performances in other segments, the paperboards business faced significant headwinds. The operating environment proved challenging due to low-priced competition from Chinese and Indonesian imports, weak domestic demand, and unprecedented rises in domestic wood costs. These pressures resulted in subdued realisations, affecting the segment's overall performance. Despite these challenges, the segment achieved a 3% YoY revenue growth, primarily driven by robust export performance. This underscores the importance of diversification in markets and highlights ITC's continued focus on portfolio enhancement, export market development, and cost management strategies. The company cited escalating domestic wood costs, further exacerbated by cyclones and increased demand from other wood-based industries, as a persistent pressure point.

The agri-business segment reported a positive outlook with a 10% YoY increase in revenue, primarily driven by growth in leaf tobacco and value-added agri-exports. The segment's profit before interest and taxes (PBIT) saw a substantial 22% YoY improvement. The value-added agri portfolio, specifically coffee exports, displayed remarkable growth. The company leveraged its advanced value-added spices processing facility in Guntur to boost export volumes. This highlights ITC's strategic investment in infrastructure and its ability to capitalize on export opportunities within the agri-business sector. Overall, ITC's Q3 results present a complex picture of success and challenges, with varying performances across its diverse business units. The company's strategic navigation of inflationary pressures, fluctuating market demands, and competitive pressures suggests a focus on long-term growth and resilience.

The closing price of ITC shares on Thursday reflected some market response to the results, falling 1.2% to Rs 442.75 on the NSE. This indicates a degree of investor caution, potentially reflecting concerns about the profit decline, despite the revenue growth and positive segmental performances. However, a complete assessment of market sentiment requires considering broader macroeconomic conditions, investor expectations, and future market outlooks. The long-term viability of ITC will depend on its continued adaptation to market dynamics, effective cost management, and successful implementation of its strategic initiatives across its varied business portfolios.

Source: ITC Q3 Results: Cons PAT falls 7% YoY to Rs 4,935 cr but revenue rises 8%

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