Hope you enjoyed our earlier insights on the performance of top stocks from different sectors FY21. Today let’s look at the stock of a giant in the Cigarette and FMCG sector – ITC.
ITC is a century old company with a diversified presence across industries such as cigarettes, FMCG, hotels, packaging, paperboards and specialty papers and agribusiness. While ITC is an outstanding market leader in many of its traditional business it is rapidly gaining market share even in its emerging businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
Now let’s take a look at the journey of ITC in the last financial year.
FY21 Performance of ITC Stock
In FY21, ITC gained 30%, while Nifty gained 71%. The above graph indicates how the stock performed against the benchmark index Nifty. During the same period the NIFTY FMCG index gained 28% while ITC stock generated a return of 30%. Despite marginally beating the FMCG index by 2%, ITC underperformed in comparison with NIFTY.
How ITC Fared in FY21
ITC’s net profit for FY21 declined by 13.9 per cent to Rs. 13,032 crores from Rs. 15,136 in the previous financial year due to Covid-19 pandemic related disruptions in the first half.
ITC’s cigarette business remained subdued in the H1FY21 after the imposition of lockdown affecting demand. However, with easing of restrictions and better mobility, ITC’s Cigarette volumes reached nearly pre-Covid levels towards the close of the year.
The company’s gross revenue increased by 3.9 percent to Rs. 48,151 crores from Rs. 46,324 while earnings before interest, tax, depreciation and amortization (EBITDA) declined 13.3 per cent to Rs 15,522 crore.
The company’s FMCG business registered a 15.8% YoY growth riding on the strong demand for staples, packaged and ready to eat foods and health & hygiene products.
ITC’s Hotels segment witnessed a gradual recovery from the 2nd half of the year on account of higher occupancy and F&B business.
While agri-business grew 78.5% because of higher demand for wheat, rice, oilseeds, exports of value-added foods the company’s paper business grew 13.5% YoY on strong demand from industrial end-users.
Factors that affected ITC’s performance in FY21
- Lockdown and mobility restrictions in H1FY21
Factors that boosted ITC’s performance in FY21
- Removal of lockdowns and easing of restrictions in H2FY21
- Strong demand for staples, convenience foods and health & hygiene products
- Robust recovery in the discretionary/out-of-home portfolio
- Recovery in hotel and F&B business in H2FY21
- Higher operating leverage
- Enhanced operational efficiencies
- Product mix enrichment
- Aggressive new product launches (120+ new launches in FY21)
- Reduced distance to market and other structural interventions.
So, is it worth investing in ITC share for the long term?
The pandemic and related lockdowns in the first half of FY21 adversely affected ITC’s cigarette and hotels business. However, despite the several challenges, ITC managed to bounce back due to vigorous growth in its FMCG business.
The company has been slowly reducing its dependence on the cigarette business due to increasing taxes and regulatory norms and focusing on increasing its FMCG and hospitality businesses.
Higher purchasing power among consumers, rising preference for branded packaged foods and significant growth in the non-cigarette business, are some of the key growth drivers for ITC.
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