ITC Posts ₹19,727 Cr Profit in Q4: But there’s a Catch!

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Introduction

This set of results has been making big headlines: the net profit has surged and dividends have been declared. However, this so-called “multifold” increase in net profit is essentially due to a one-off exceptional gain that accrued out of the strategic demerger of its hotels business and does not at all speak about the core operational performance being dramatically better. This report will look into the core performance of ITC in the quarter ended in March and will discuss what really drives the financial position of ITC Limited, how the strategic demerger affects this, and the implications of each for investors.

Context

ITC Ltd had reported a consolidated net profit of Rs 19,727.37 crore for Q4 FY25, nearly fourfold higher than Rs 4,934.80 crore in Q4 FY24. But this extraordinary increase had earned an exceptional gain of ca. Rs 15,163.06 crore from the demerger of its hotels business into ITC Hotels Ltd. (ITCHL) effective January 1, 2025. Excluding this one-off gain, profit from continuing operations was Rs 5,155.27 crore. Consolidated gross revenue for Q4 FY25 stood at Rs 20,376.36 crore, showing marginal increase.

The Board has recommended a final dividend of Rs 7.85 per share for FY25, thus giving a total dividend of Rs 14.35 per share for the year, including Rs 6.50 paid as interim dividend. The record date for final dividend was May 28, 2025.For the full fiscal year 2025, consolidated net profit, affected by the demerger gain, was at ₹34,746.63 crores. This stood on revenues of ₹80,942.76 crores.

The hotels demerger is meant to strategically unlock long-term value through the creation of one or more “pure play” entities so that each business can attract specific investors and perhaps gain better valuations; the separation allows ITC to concentrate on its core businesses in high-margin cigarettes and FMCGs. Absent the demerger gain, the dividend payout supports management’s belief that the rest of the businesses will provide sustainable profitability and strong cash flow.

Real World Impact

Payment of huge dividends puts ITC in a situation of high-dividend-yielding stock; it attracts yield-side investors. Such a dividend declared also suggests management confidence that the company can generate cash flows going ahead.

On a segmented basis, Cigarettes registered strong revenue growth of 6-6.2% YoY, volume-driven along with some strategic interventions. FMCG-others, on the other hand, grew 3.7 to 4% YoY, or 5.4% excluding notebooks, with a fairly strong performance in Atta, Spices, and Snacks categories, barring inflationary pressures. Agri Business showed a phenomenal growth of 17.7-18% YoY in revenue, led by leaf tobacco and value-added agri exports. Paperboards, Paper & Packaging grew 4.5-5.6% YoY but faced pressure from cheap imports and high wood cost.

The diversified business model of ITC brings stability; wherein strong performance of some segments offsets the marginal performance of others. Forward-looking investments into new areas of growth such as nicotine derivatives and acquisitions show strong intent on building a “future-ready portfolio”.

Table 1: ITC Q4 FY25 Segment-wise Revenue Growth (Year-on-Year)

Public Sentiment

If I am to traverse the skyline of sentiments, it was at first very much cheerful upon hearing the report of the huge profits; very soon, however, the sentiment fell, as the reasons behind this scenario were taken into full glare. On the day of the results, the share price of ITC fell quite sharply, with closure down 1.58% on the BSE and 1.73% on the NSE. This fall despite large reported profits would clearly indicate that the market understood the non-operational nature of this sudden increase. The stable dividend would have ensured a strong positive support from income-oriented investors.

Expert Analysis

Most market analysts took a somewhat nuanced perspective of ITC’s Q4 FY25 performance, distinguishing between reported profit and the underlying operational trends. The majority expected a bit of revenue growth and decline in profit from continuing operations on account of inflationary pressures and competitive intensity. For example, Axis Securities expected revenue growth of 1% and a decline of 7.5% in PAT from continuing operations. Motilal Oswal Financial Services (MOFSL) expected volume growth of 4.5% in cigarettes and sales growth of 2% in FMCG while noting pressure on demand in urban areas.

The hotels demerger is generally seen by experts as a positive strategic initiative for long-term value creation. The separation would allow both the hotel entity and the remaining core businesses to sharpen their focus and strategies independently of each other and thus, capitalize in such a manner that leads to higher valuations as “pure play” entities.

vitt’s take..

_{(vitt – Where India Reads is a space for making Business and finance stories digestible and relevant to India’s digital generation.)}

The one-time superior gain from the hotels demerger ended up flattering the headline numbers, as ITC’s Q4 FY25 results showed a tremendous rise in profits on the back of this gain. Excluding this, the profit grew only modestly from continuing operations, which reflects the underlying performance in a consumptive environment that was still a bit challenging. The hefty dividend points toward ITC’s unwavering commitment to its shareholders.

In terms of operational performance, ITC’s diversified segments put up a mixed bag, with Cigarettes and Agri Business shining, while FMCG-Others and Paperboards floundered. The diversified model thus offers some stability. The hotels demerger acts as an important strategic enhancer to long-term value by unbundling the entities further. This would ensure that each separate business segment is best recognized and afforded equal growth opportunities. Investors should look beyond the immediate headline numbers and examine the long-term prospects and potentials of both the demerged hotel entity and the core ITC businesses, having regard to their chosen strategies and capabilities for execution.

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