ITC’s Q3FY23 cigarette volumes grew 15% y-o-y with continued volume recovery from the illicit segment. Revenue grew by 16.7%, as it witnessed good traction from new launches and uptrading in the regular size (RSFT69mm) segment. With the key hurdle of budget now behind and only a small tax revision on cigarettes, this augurs well for continued strong trend, in our view. Ebit margins improved c.11bp to 63.4% on continued cost efficiency programmes. Ebit grew 16.9% y-y.
FMCG reported better than peers growth (+18% y-y) led by Atta, spices, biscuits, noodles, snacks, and dairy. While soaps did well, hygiene continued to witness demand moderation. Both rural and urban sales saw good traction with ramped-up reach expansion. ITC is driving premiumisation within each category with innovation and new launches. Input cost is moderating on a q-q basis. It continued to improve its OPM (10% vs. 9.5% in 2Q23), led by its multiple interventions.
ITC’s hotels business (+51% y-y on weak base) witnessed strong revenue growth with improved occupancy (aided by festive) and RevPAR across retail (packages), leisure, weddings and business (MICE) segments. Domestic business travel has normalised while inbound foreign travel is witnessing a pickup. OPM improved to 31.5% (vs 24.7% y-y), driven by higher RevPAR, operating leverage and structural cost interventions. In Q3, ITC launched Welcomhotel Jim Corbett.
We expect the strong business growth momentum to continue across divisions. In cigarettes, we believe a pragmatic tax regime not only acts as a fodder for volume growth from illicit but also increases its predictability premium. We expect FMCG, hotels, paperboard to continue to witness improvement in business and margins supported by new launches, and reach expansion.