ITC to announce Q3 results today; here's what to expect from FMCG major

Cigarette-to-soap conglomerate ITC is expected to deliver sales, earnings before interest, tax, depreciation, and amortisation (EBITDA) and adjusted profit after tax (PAT) growth of 5.7 per cent, 7 per cent and 14.8 per cent YoY, respectively in 3QFY20. Cigarette volume is likely to grow at 3 per cent YoY on a base of 7 per cent growth while cigarette segment earnings before interest and tax (EBIT) is expected to grow at 7 per cent YoY, said analysts at Nirmal Bang Securities in its earnings preview note. "Mirroring the industry, Other-FMCG business growth will be subdued at 5 per cent YoY. We are building in EBITDA margin expansion of 50 basis points (bps), led by gross margins," the brokerage said.

Analysts at KRChoksey expect the company's top line (sales/revenue) to grow 5.7 per cent YoY and 1.8 per cent QoQ to Rs 12,080 crore, mainly due to good traction in non-cigarette space such as hotels, agri business and paper. Cigarette volumes are likely to be affected due to moderate volumes as a result of competitive intensity, rural slowdown and health awareness. EBITDA is expected to be almost flat QoQ and up 6.3 per cent YoY at Rs 4,597 crore. Further, net profit of the company is expected to come in at Rs 3,951 crore, up 23 per cent YoY and down around 2 per cent on QoQ basis. The brokerage notes that reduction in tax rates will lead to net profit margin expansion.

Shares of ITC have underperformed the market by falling over 8.5 per cent during October-December period against 6 per cent rise in the Nifty index. The Nifty FMCG index has declined over 3 per cent during the same period.

"ITC is expected to post sales growth of 6 per cent YoY driven by good growth from cigarettes & paper segment. Cigarette segment sales growth would be driven by volume growth of 4 per cent and price hikes of 1.5-2 per cent taken in the segment recently. FMCG segment should witness slower growth of 6% sales growth as compared to its erstwhile quarters, affected by demand slowdown in rural regions. With select price hikes in cigarettes segment, rapid improvement in FMCG operating margins and reduction in corporate tax rates, we expectnet profit to show strong growth of 12.7 per cent to Rs 3,615.9 crore," says ICICI Securities.  

KEY THINGS TO WATCH OUT FOR

Diversification into FMCG space (Frozen food), status of Delectable Technologies acquisition, guidance on price and volume, new product launches and product mix, demand outlook for FMCG and Cigarette segment, and potential hike in cigarette tax are some of the key things to watch out for when the company announces results on Friday.