ICICI Direct: ITC’s Double Digit FMCG Margins In Sight
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ICICI Direct Report
ITC Ltd. reported 17.4% decline in sales with cigarettes revenues seeing degrowth of 29.1%. The volume dip of 40% was better than our expectation given 45 days business loss. We believe trade (distributor, retailers) inventory would have depleted during lockdown despite retail shops staying closed. Preferred pack buying over loose cigarettes also helped restore volumes.
These factors would have helped company to refill trade pipeline given manufacturing and supply chain operations normalised in June. The trade normally holds 14 days inventory.
Comparable FMCG sales grew 12.2% with strong demand in staples, packages foods and hygiene product and steep decline in discretionary and stationary businesses. Operating margins contracted 1184 basis points mainly impacted by negative operating leverage and excise hike earlier in budget. Net profit de-grew 26.2%.
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