ITC's gains depend on margin recovery and revival in FMCG segment

ITC's Q4FY25 net profit rose 0.8 per cent on strong cigarette volumes but pressure in FMCG and paperboards hit margins, with rural demand holding the key

 

For the fourth quarter of financial year 2024-25 (Q4FY25), FMCG giant ITC reported 9.6 per cent year-on-year (Y-o-Y) growth in revenues, with operating profit soaring 2.5 per cent and net profit by 0.8 per cent.

 

The big gains were made on the back of healthy volumes in the cigarette segment.

 

The FMCG topline grew 3.7 per cent Y-o-Y, but segment profit declined 28 per cent. The paperboards’ segment profit declined 31 per cent despite a low base (profit was down 55 per cent in Mar ’24 versus Mar’23). Inflationary pressure could continue to hurt margins.

 

ITC’s gross revenue (excluding agri business) grew 7.2 per cent Y-o-Y. Operating profit grew 2.5 per cent Y-o-Y to ₹5,990 crore. Cigarette net revenues grew 6 per cent Y-o-Y while segment profit growth was 4 per cent Y-o-Y, with volume growth at 5 per cent. But segment margin was down 120 basis points. The FMCG segment margin was 6.3 per cent, down 275 basis points Y-o-Y. The paperboard segment margin dropped 490 basis points Y-o-Y to 9.2 per cent.

 

Agri revenues grew 17.7 per cent and segment profit grew 25.9 per cent Y-o-Y. The recurring net profit was ₹4,870 crore was up 0.8 per cent Y-o-Y while net profit from discontinued operations was ₹ 14,690 crore, on account of gains on the hotels demerger. ITC declared a final dividend of ₹7.85, taking the total dividend for FY25 to ₹14.35 per share (₹13.75 per share in FY2024). Net cash stood at ₹29,170 crore as of March 2025. 

 

Continued inflation in edible oil, wheat, maida, potato, cocoa, leaf tobacco, pulpwood, etc., hurt margins. Competitive intensity is high in categories like noodles, snacks, biscuits and soaps. Paperboards struggled against cheap Chinese and Indonesian imports, soft demand and a surge in wood prices. India has initiated an anti-dumping investigation on virgin paperboard imports.

 

Consumption is expected to improve, supported by a rural recovery, improving urban demand, easing inflation and tax relief. Increased government capex, and interest rate cuts may boost consumption.

 

In cigarettes, the impact of rising leaf costs was offset by product mix enrichment, calibrated pricing and focused cost management. ITC launched several innovative variants of its brands. Amendments to CGST Act may enable better future enforcement against smuggling. 

 

Emerging channels (modern trade or MT and digital) contributed 31 per cent to FMCG sales. FMCG growth was driven by atta, spices, snacks, frozen snacks, dairy, premium personal wash, homecare, and agarbatti.

 

Notebooks were impacted by competition from local players. Aashirvaad atta posted strong growth on a high base, comprising around 14 per cent of the staples portfolio. New launches like soya chunks and roasted vermicelli received good consumer response.

 

ITC also launched over 100 new products in health & nutrition, hygiene, protection, care, convenience, etc. Personal care saw strong volume growth in FY25, led by scale-up in e-commerce, quick commerce and MT.

 

ITC announced several acquisitions in FMCG, picking up Sresta Natural Bioproducts (24 Mantra Organic Foods), Mother Sparsh, and Ample Foods (Prasuma and Meatigo). ITC also entered into an agreement to acquire the pulp and paper segment of Aditya Birla Real Estate (Century Pulp and Paper). This will scale operations, enable future capacity expansion, and reduce operational risks and improve portfolio diversification.

 

The agri-business grew 17.7 per cent Y-o-Y, driven by leaf tobacco and value-added agri (spices/coffee) and rice exports. The nicotine derivatives unit, ITC IndiVision, began exports at end-Q4FY25.

 

The climate smart agricultural programme covers 3.17 million acres and 1.2 million farmers while ITCMAARS, a crop-agnostic full stack AgriTech platform has scaled up across 11 states and 2.1 million farmers. ITC’s market coverage and rural stockist reach has been stepped up sharply. The eB2B platform, UNNATI, now covers nearly 800,000 outlets.

 

The margin compression is a serious concern. But if ITC can sustain mid-single digit volume growth in cigarettes and the FMCG business sees a recovery, there may be a valuation re-rating. Analysts appear to be cautiously optimistic.