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ITC Q3 net seen up 12.6%, cigarette volumes may fall: Poll

Cigarette-hotel-to-FMCG major ITC ‘s third quarter profit is expected to rise 12.6 percent year-on-year to Rs 2,686 crore, according to the average of estimates of analysts polled by CNBC-TV18.

Net sales are seen going up 11.7 percent to Rs 9,744 crore in the quarter ended December 2014 compared to Rs 8,727 crore in same quarter last year. Analysts feel overall earnings growth is likely to be soft during the quarter. Profit growth has been capped at just 12-13 percent against company’s historic range of 15-20 percent.

According to them, the full impact of a third consecutive year of price hikes (in cigarettes business) may hit volumes in the quarter. They expect margin expansion across all segments except hotels and paperboards/packaging.

Operating profit may rise 12.8 percent on yearly basis to Rs 3,706 crore driven by cigarettes, FMCG and agri businesses. Operating profit margin may expand 40 basis points to 38 percent in the quarter gone by.

Cigarettes

Analysts say, ITC may see one of the most challenging quarters in terms of cigarette volumes. The full impact of price hikes and recent increase in the VAT rate in key states (Tamil Nadu, Kerela, Assam) are likely to weigh on consumer demand against the backdrop of rising cigarette prices and the high duality of tobacco consumption in India.

This segment’s performance may be characterised by significant price growth in cigarettes and high decline in volumes. This time the cigarette volumes could show a steep decline of 5 percent.

Analysts expect cigarette segment revenue growth at 12 percent.

FMCG – others business

The business may continue its trend of improving profitability during the quarter. FMCG business is expected to post around 12-13 percent Y-o-Y growth on base of 16.6 percent in the year-ago period.

Analysts expect positive EBIT contribution from FMCG at around Rs 12 crore, which may also be aided by softening input costs during the quarter.

Hotels

Hotel business is expected to remain soft during the quarter (with 7-8 percent revenue growth) on weak macros and weak demand, as against 1.9 percent in the year-ago period.

Performance of hotels could improve on sequential basis on account of seasonal impact. However, increase in depreciation rates may have an impact on this business.

Agri business

Agri business is expected to be weak on account of lower tobacco exports. Analysts expect 12 percent revenue growth in agri segment.

Paperboards & packaging segment

Analysts expect 8-10 percent growth in revenues, largely led by realisations.

Stock performance

The scrip of ITC declined 0.6 percent during the quarter as health ministry proposed a ban on sale of loose/single stick of cigarettes and the government has also moved to amend the anti-smoking law. Even fears of rebalancing in MSCI also weighed on the stock.

All this negative news and the Budget overhang (likely increase in excise duty or the slapping of an ad-valorem tax) are likely to keep stock under pressure, say analysts.

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