ITC growth inches up, but stock is out of fizz

ITC revenue for Q1 FY2025 reached ₹18,457 crore, a 7.53% increase YoY. Profits are also growing. But stock is not moving. Time to buy?

Coffee Crew

Coffee Crew

— 1 min read
ITC growth inches up, but stock is out of fizz
Photo by Sirav Talwar / Unsplash

Despite improving fundamentals, a healthy dividend, and strong consumer tailwinds, ITC's stock has lagged the market year to date – up only 6%, against double digit returns of the Nifty 50.

ITC's diversified business is aggressively moving away from tobacco, and towards FMCG, and hospitality business. Stock received a nice boost after an impressive Q1 FY2025 results, offering further evidence of a strategy in motion.

In the numbers:

  • Revenue for Q1 FY2025 reached ₹18,457 crore, a 7.53% increase YoY.
  • Op profit grew to ₹6,748 crore, with margins holding steady at 37%.
  • Net profit remained robust at ₹5,177 crore, despite a slight 0.22% dip from the previous year.

State of play: Improving fundamentals haven't done much for the stock though. ITC's stock returned 11% YoY, outperforming many peers in a challenging market, but underperforming the broader market.

  • ITC's current market cap stands at an impressive ₹620,017 crore.

At this scale, ITC's fundamental improvements are quite consistent.

  • 3-year sales CAGR of 13% demonstrates steady growth.
  • 5-year profit CAGR of 10% indicates sustainable earnings growth.
  • ROCE improved from 33% in FY2022 to 37.5% in FY2024, showcasing efficient capital utilization.
  • Operating margins have remained consistently strong at around 36-37%.

Context: Investors are paying attention to the FMCG story for the next lap of growth.

  • The company's FMCG portfolio, including popular brands in food, personal care, and stationery, positions it well in India's growing consumer market.
  • ITC's presence across multiple sectors (FMCG, Hotels, Paperboards, Agri-Business) provides resilience and growth opportunities.

Caveat: ITC offers an attractive dividend yield of 2.77%, which has kept the stock popular with income-focused investors. The company has maintained a healthy dividend payout ratio of 92.4%.

Looking Ahead: ITC's ability to maintain high margins and generate consistent cash flows, coupled with its strategic focus on the consumer goods sector, positions it well to capitalize on India's evolving consumer landscape.

Zoom out: For investors, ITC represents a blend of stability and growth potential, backed by a strong brand portfolio and diversified revenue streams.

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