ITC Q1 results: Cigarette volumes may fall sharply; key expectations, share price targets

ITC Ltd is expected to report 11-13 per cent fall in year-on-year (YoY) net profit for the June quarter on up to 10 per cent fall in net sales. Cigarette volumes are seen falling in double-digits, while the overall margin is expected to contract sharply on both YoY and sequential basis.

Axis Securities expects ITC to report 13 per cent YoY fall in net profit at Rs 4,272 crore on 10.2 per cent YoY drop in sales at Rs 17,597 crore, primarily due to the substantial cumulative tax hikes of about 45 per cent on cigarettes.

The brokerage sees Ebitda for the FMCG major falling 14.9 per cent to Rs 5,468 crore and Ebitda margin contracting 87 basis points YoY to 31.1 per cent.

"The sharp increase in taxation is likely to shift the company's strategy from full-price pass-through to calibrated price increases in order to safeguard the legal franchise and curb downtrading to illicit products. While the company has implemented staggered price hikes, these remain insufficient to fully offset the impact on margins," Axis Securities said.

Emkay Global expects standalone net sales for ITC to decline 1 per cent YoY due to sharp hike in taxes. In cigarettes, it expects volume decline of 10 per cent YoY and a 20 per cent fall YoY in EBIT. "Other FMCG is expected to deliver 12 per cent revenue growth YoY, with Ebitda margin expansion of 60 bps YoY on a benign base. Agri business is expected to stay under pressure, with revenue decline of 10 per cent YoY, while the Paperboards and packaging segment is expected to deliver 10 per cent revenue growth YoY," Emkay said.

This brokerage sees ITC's Q1 net profit at Rs 4,359 crore, down 11 per cent. Net sales is seen at Rs 19,630 crore, down 1 per cent. Ebitda margin is seen at 28.2 per cent, down 350 bps QoQ and 1,190 bps YoY.

Axis Securities said ITC's FMCG business is expected to post a healthy 12 per cent YoY growth, while the Paperboards, Paper & Packaging segment is likely to grow 6 per cent YoY. In contrast, the Agri business is expected to decline 2 per cent YoY, weighed down by shipping disruptions and policy-related headwinds.

ITC Cigarette segment 
Kotak Institutional Equities said ITC’s cigarettes segment volumes and sales may drop 9 per cent and 20 per cent YoY. Cigarette EBIT is estimated to decline 32 per cent YoY, largely due to inadequate price hikes to fully protect profitability.

"Overall, the volume impact on ITC’s cigarette portfolio has been relatively contained, while the EBIT impact has been significant due to partial tax absorption and adverse mix shifts. 2Q EBIT trajectory is likely to be better (say 20 per cent decline) aided by recent calibrated price hike in RSFT (Rs 12.50/stick from Rs 11.50) and thrust on EBIT-neutral alternatives such as Longs, premium DSFT variants, and other new products during the quarter," it said.

ITC share price targets

Ahead of its earnings, ITC had 15 "buy' cals, 16 'Hold' and six 'Sell' calls. The consensus target on the stock stood at Rs 340, which implied 21 per cent upside for the FMCG stock that has fallen 28 per cent in the past 12 months. Macquarie on Friday suggested a "neutral on the stock with a target of Rs 330. Earlier Kotak on July 24 suggested a fair value of Rs 365 for the counter.  BNP Paribas (target: Rs 380), Antique Stock broking (Rs 384) and Axis Capital (Rs 320) are some of the recent calls on the stock. The stock saw a total of 12 updates in July, with PL Capital's target of Rs 302 being the lowest.