ITC sinks 3% after Q2 results in sharpest single-day decline in 12 weeks

The festive season, increase in rural wages, and government spending on infrastructure are expected to propel rural demand ahead, according to analysts

Shares of ITC slipped 3 per cent to Rs 437.80 on the BSE in Friday’s intra-day trade on reporting a lower-than-expected rise in consolidated net profit for the September quarter (Q2FY24). 

The stock on Friday recorded its sharpest intra-day fall in the past 12 weeks. Earlier, on July 25, 2023, it had declined 3.3 per cent.

At Rs 4,898.07 crore, ITC's Q2 consol profit was up 6 per cent YoY, below analyst estimates as higher costs offset strong demand for its cigarettes and consumer goods. 

Gross revenue on a consolidated basis was at Rs 17,549 crore, higher by 3.4 per cent year-on-year. Bloomberg consensus estimate for revenue was at Rs 17,589 crore and net income adjusted was Rs 4,974 crore.

Stock limits on wheat, ban on non-basmati rice exports and export duty on parboiled rice limit business led to a 1.7 per cent YoY de-growth in agri business revenue.

Performance in the Paperboards, Paper & Packaging segment was impacted due to low priced imports and muted demand in export markets, according to ICICI Securities.

Further, margins were impacted largely due to sharp drop in realisations and increased cost of inputs. Festive season, increase in rural wages and government spending on infrastructure are expected to propel rural demand ahead, while volatility in commodity prices as well as impact of monsoon on input price remains watchful, the brokerage said in a note.

The cigarette business posted around 4 per cent YoY volume growth in 2QFY24 vs Motilal Oswal Financial's estimate of 6 per cent.

With no material increase in the cigarette GST/national calamities duty, the volume growth outlook remains healthy. However, the near-term margin would remain under pressure due to cost inflation, the brokerage said in a note. 

At a time when uncertainty looms over the industry, led by high inflation, unpredictable monsoons, and continued weak rural sales, ITC’s recovery in cigarette volumes offers decent earnings visibility at reasonable valuations and attractive dividend yield, the brokerage added. 

Those at Prabhudas Lilladher expect cigarette volume growth to moderate to 4-5 per cent range in H2-FY24.

FMCG business is expected to gain from festive season, expected uptick in rural demand and scale economies. The brokerage firm believes paper and paperboard business is near bottom and expects QoQ margin improvement in coming quarters.

It expects strong growth from hotels and FMCG to sustain given benign input costs and strong demand outlook for both domestic and foreign travel.