ITC Q4 preview: Cigarette, FMCG businesses likely to push profit higher

Cigarette-to-soap maker ITC will report its March 2019 quarter earnings on Monday. The results and guidance assume significance as the economy grappels with slowing consumption and an overall structural slowdown.

Last week, Hindustan Unilever (HUL), the country’s largest consumer goods company, reported its lowest volume growth in six quarters for the January-March period (Q4FY19), on the back of moderation in rural demand.

As regards ITC, analysts expect a healthy gain in revenue and profit in Q4FY19 on the back of volume growth in the cigarette business segment and an improvement in the FMCG business.

Analysts at Edelweiss expect the revenue (standalone basis) to come in at Rs 11,661 crore, a 10.2 per cent growth on a year-on-year (YoY), while profit may jump 9.7 per cent YoY to Rs 3,217.3 crore. This growth in profit, they believe, will come through on account of nearly 5 per cent YoY growth in cigarette volume. The company had posted Rs 10,586.8 crore in revenue in the corresponding quarter last year.

"In the FMCG business, we expect around 12 per cent revenue growth on a base of 5.8 per cent. We expect the hotels business to clock revenue growth of around 14 per cent on a base of 5.6 per cent. Agri business should clock a growth of around 8 per cent YoY on a base of -5.7 per cent growth. Paper business should clock 8 per cent revenue growth on a base of -5.7 per cent," Edelweiss said in a results preview note.

Reliance Securities, on the other hand, peg the net profit at Rs 3,178.7 crore, an 8.4 per cent YoY growth, while revenue is seen at Rs 10,628.7 crore, a 1.4 per cent jump on a YoY basis. The brokerage firm expects ITC's earnings before interest, taxation, depreciation, and ammortisation (EBITDA) at Rs 4,353.8 crore, a 5.1 per cent YoY hike, helped by improving cigarettes and FMCG business while EBITDA margin may expand 142 bps YoY to 41 per cent.

At the bourses, ITC has outperformed the benchmark S&P BSE Sensex in the last one year by surging 7.12 per cent as compared to the latter's 6.56 per cent  gain in the same time period.

Post two years of stable pricing, ITC has recently hiked prices of select cigarette brands, which analysts say, enhances their confidence on the company’s ability to hike prices going ahead as well. 

"We expect 3 percent volume growth in FY18-20. FMCG profits are expected to increase by 2-3x in the coming few years given scaled up foods business and peaked out losses in lifestyle. The stock continues to trade at around 40 per cent discount to consumer universe given investor fears of frequent increase in GST rates of cigarettes right from introduction of GST and 20 per cent increase in excise. Retain Buy at 23.4xFY21 EPS, around 65 per cemt dividend payout ratio with 2.2 per cent dividend yield," analysts at Prabhudas Lilladher wrote in a result preview note.