Why was the stock price of ITC not impressed despite very good results in Q3?

Let us first look at the numbers and then come to why the stock did not perform. ITC reported 30.8% growth in total sales for Dec-21 quarter at Rs.17,108 crore. In terms of specific verticals, revenues from FMCG products were up 9.25% at Rs.4,100 crore but sales of cigarettes were up a hefty 14.3% at Rs.6,959 crore. Even a recovery was seen as hotel revenues doubled to Rs.496 crore and agri business grew 91% at Rs.5,157 crore. The sales of papers and paperboards was up 38% at Rs.2,046 crore.

Overall operating profits grew 18.22% at Rs.5,168 crore. The biggest boost came, as usual, from cigarettes business which reported operating profits of Rs.4,187 crore. In short, ITC saw 78% of its operating profits come from cigarettes and that is why the markets were not impressed and the result was seen in the stock price. FMCG EBIT disappointed at just Rs.246 crore as higher input costs dented the operating profits.

Among other verticals of ITC, the agri business reported 17% EBIT growth yoy at Rs.348 crore but EBIT margins of just 6%. It remains a marginal contributor to the bottom line. Operating margins tapered on the back of higher operating costs from 33.42% in Dec-20 quarter to 30.21% in the Dec-21 quarter. The moral of the story for ITC was that despite 25 years of consistent efforts, they continue to be a cigarettes story, impacting stock prices.

Finally, a look at the bottom line. The net profit after tax for Dec-21 quarter was up 15.03% at Rs.4,057 crore. The profits were lower than anticipated as the FMCG business did not live up to the profit expectations due to the impact of input costs rising sharply in the quarter. PAT margins tapered from 26.96% in the Dec-20 quarter to 23.71% in Dec-21 quarter. ITC also declared a dividend of Rs.5.25 per share. To summarize, the overdependence on cigarettes for bottom remains the concern on the stock.