ITC Q1 Results preview: Weak cigarette sales to drag profit by up to 40%, FMCG segment holds promise

NEW DELHI: FMCG major ITC looks set to report a 33-40 per cent year-on-year (YoY) decline in net profit for the June quarter, hurt by a sharp plunge in cigarette and paper segment sales, and a near washout quarter for hotels business.

Net sales may drop 25-30 per cent, with margins expected to take a severe hit of 800-1,300 basis points. The silver lining, if any, would be 5-10 per cent growth in the FMCG segment sales.

It must be noted that cigarette sales were strictly not allowed for the first 45 days of the lockdown-hit quarter.

The production was allowed only from mid-May and the supply started coming into the market from May-end.

Sales recovered substantially in June, said analysts, who see cigarette volume degrowing 50 per cent for the quarter. This would be on a base of 3 per cent volume growth in the year-ago quarter.

The cigarette volume declined 10 per cent in the March quarter.

Brokerage Emkay Global expects ITC's profit to dive 38.1 per cent YoY to Rs 1,964.50 crore compared with Rs 3,173.90 crore in the same quarter last year. Sales are seen falling 24.6 per cent to Rs 8,679 crore from Rs 11,503 crore in the year-ago quarter. Ebitda margins are seen crashing 13.08 percentage points to 26.6 per cent from 39.7 per cent YoY, largely due to hit in high-margin cigarette business.

"We estimate a decline of 47 per cent in cigarette sales, with an Ebit decline of 55 per cent. We expect FMCG sales to grow 6 per cent, with a 10 per cent fall in segment Ebit. Other divisions may record sales and Ebit decline of 16 per cent and 50 per cent," Emkay Global said.

While cigarette revenues account for just over 40 per cent of ITC's revenues, they account for over 65 per cent Ebit

Sharekhan sees ITC's profit at Rs 2,103 crore, down 33.7 per cent. This brokerage expects ITC sales to fall 27.7 per cent to Rs 8,312 crore. Operating profit margin is seen at 27.7 per cent.

"Overall, we expect cigarette sales volume to decline by 50 per cent in Q1. FMCG business will deliver double-digit growth due to strong demand for atta, noodles and biscuits. The hotel business was a complete wash-out," Sharekhan said.

On FMCG business, Edelweiss expects the FMCG business to have done well on the back of both foods and personal care segments. Products such as biscuit should see good double-digit growth while snacks should do well, the brokerage said.

"We expect the FMCG business to report 10 per cent YoY revenue growth on a base of 6.6 per cent YoY growth. The hotel business is likely to be the most adversely impacted by the Covid-19 outbreak, leading to a revenue dip of 90 per cent YoY on a base of 15 per cent YoY growth. The agri business should clock a dip of 5 per cent YoY on a base of 14.6 per cent YoY growth.

The paper business should see a revenue dip of 40 per cent YoY on a base of 12.7 per cent YoY growth," Edelweiss said.

This brokerage sees cigarette volumes to fall 50 per cent YoY.