ITC - Earnings Visibility Continues To Drive Outperformance: Motilal Oswal

Motilal Oswal Report

As consumer companies continue to struggle in an uncertain operating environment, ITC Ltd. is better placed than peers with accelerated earnings growth over the past two years, especially in FY23, and strong earnings visibility compared to peers into FY24 as well. Key factors behind its positive outlook are:

• Healthy cigarette volume growth in the recent quarters is likely to sustain in the near term, leading to the best three-year and four-year average volume growth for over a decade.

• With no high indirect tax increase in the FY24 budget, the operating environment is far more conducive compared to the punitive regime of the preceding years.

• Over the past five to six quarters, ITC has sparingly used its pricing lever and can continue to take leverage on the same going forward. 

• Unlike staples peers, the company has displayed resilient operating performance of its ‘other fmcg’ business in the past few quarters. If wheat costs decline sharply post the Rabi harvest, performance on the segmental margin front can be even better in FY24.

• Hotels business prospects are likely to be buoyant going forward as highlighted in our thematic report on hotels by our mid-cap team.

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