ITC Q1 preview: FMCG segment to cushion overall nos; PAT may dip 30% YoY

Impact of the lockdown of manufacturing facilities, cigarette inventory levels, guidance on price and volume, and alternate distribution channels are among the key monitorables

A steep decline in its cigarette and hotel businesses due to the disruptions caused by the Covid-19 pandemic is expected to dent the June 2020 quarter (Q1FY21) earnings of the diversified conglomerate ITC, which is slated to announce its numbers on July 24, Friday. 

The company's fast-moving consumer goods (FMCG) and personal care verticals, analysts say, may perform better as the lockdown kept people indoors, thereby, boosting the demand for ready-to-eat/cook food items, and personal hygiene products such as soaps and sanitisers.

Impact of the lockdown of manufacturing facilities, cigarette inventory levels, the performance of new products / launches, guidance on price and volume, and alternate distribution channels during the lockdown are some of the key monitorables.

Here's a look at what leading brokerages expect from ITC's June quarter numbers.

KR Choksey Securities

The brokerage expects ITC's top line (sales/revenues) to decline 26.9 per cent year-on-year (YoY) and 26.4 per cent quarter-on-quarter (QoQ) to Rs 8,407 crore. "Hotel business which occupies nearly 4 per cent of revenue will take a major negative hit, while the Cigarette segment is expected to be severely impacted due to lockdown and health warnings amidst the Covid-19 outbreak," it said in a result preview note. 

The brokerage further said that sales would most likely be driven by the hygiene product segment comprising soaps, handwash (Savlon brand), Floor disinfectant (Nimyle Brand), and its FMCG products (Noodles, Packaged Atta and biscuits). Earnings before interest, taxes, depreciation, and amortisation (EBITDA) is seen at Rs 2,503 crore, down 45.2 per cent YoY and 39.9 per cent QoQ. EBITDA margin is estimated to decline 992 basis points (bps) YoY to Rs 29.8 per cent, while net profit is expected to fall 29.9 per cent YoY and 41.5 per cent QoQ to Rs 2,222 crore.

Nirmal Bang Securities

ITC is expected to deliver sales, EBITDA, and adjusted PAT decline of 25.7 per cent, 36.5 per cent and 26.0 per cent YoY, at Rs 8,548 crore, Rs 2,898.2 crore, and Rs 2,349.2 crore, respectively. Cigarette sales are likely to decline by 30 per cent YoY due to volume decline of 40 per cent YoY, as production resumed only in mid-May. The other-FMCG business, however, will record sales growth of 8 per cent YoY and will partially offset steep declines in other business segments. EBITDA margin is expected to contract by 580bps YoY to 33.9 per cent due to lower operating leverage during the quarter.

Edelweiss Securities

Analysts at the brokerage firm estimate ITC's revenues to decline 18 per cent YoY to Rs 9,438 crore while EBITDA is expected to see a fall of 32.8 per cent YoY to Rs 3,067.4 crore while profit after tax (PAT) is pegged at Rs 2,582.4 crore, down 18.6 per cent YoY. "The covid-19-induced lockdown impacted cigarettes volumes across April; May saw some recovery and June reached pre-covid-19 level. Hence, on base of 3 per cent cigarette volume growth, we expect cigarette volumes to decline nearly 50 per cent YoY (Q4FY20 saw 10 per cent YoY volume growth on a base of 7.5 per cent YoY growth)," it said. Hotel business is likely to see a revenue dip of nearly 90 per cent YoY, while the agri business should clock a dip of 5 per cent YoY. The paper business, according to the brokerage, should see a revenue dip of 40 per cent YoY. Last year, this segment had recorded 12.7 per cent growth.