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Informist, Tuesday, Oct. 15, 2024

 

By Avishek Rakshit

 

KOLKATA – Cigarette-to-soap major ITC Ltd. is expected to report a net profit of INR 50.8 billion during Jul-Sept, up 3% on year, due to a rebound in cigarette sales and other verticals like consumer goods, hotels, and the agricultural business posting revenue growth, the average of estimates by 11 brokerages showed. The revenue is expected at INR 178.2 billon, up 0.6% on year.

 

Sequentially, the net profit is expected to grow 3.2%, but revenue is expected to fall 2.2%. In the year-ago period, the company had reported a net profit of INR 49.3 billion rupees on revenue of INR 177.1 billion, while in Apr-Jun, its net profit was INR 49.2 billion on revenue of INR 182.2 billion.

 

The company will report its earnings for the quarter ended September on Oct. 24.

 

Among brokerages, Prabhudas Lilladher Pvt. Ltd. has estimated ITC's net profit the highest at INR 52.2 billion and Emkay Global Financial Services Ltd. estimated it the lowest at INR 49.7 billion. The highest revenue has been estimated by Motilal Oswal Financial Services Ltd. at INR 187.6 billion, while Elara Securities (India) Pvt. Ltd. estimated it the lowest at INR 174.4 billion.

 

Most of the brokerages expect ITC to post a volume-led revenue growth in its cigarette business. Although ITC is a diversified conglomerate with a wide range of portfolio including consumer goods like soap, office stationery, and others, it also has a strong commodity trading business. The company has also diversified into the hotels business around four decades ago which is now demerging. Despite all of such revenue and profit streams from consumer goods, hotels, paper and paperboards, and agricultural business, the primary earner for ITC remains cigarettes.

 

Cigarettes typically account for around 43% of ITC's annual revenue, but around 80% of its annual profit. Hence, the performance of its cigarette business is the primary driving factor for analysts while estimating the company’s performance and offering market advice on the stock. This apart, performance of the non-cigarette fast moving consumer goods business, and agricultural trading are key monitorable as well.

 

In their respective reports on ITC, nearly all brokerages anticipated ITC to post a 2-3% volume growth in its cigarette business which will become the primary profit driver. Increasing sales of the premium portfolio and upscaling of brands into premium products could lead to a revenue growth of around 7% as well from the cigarettes business, brokerages said.

 

Although ITC mostly maintains silence on its performance on cigarettes and sales strategy for the segment, several sector analysts told Informist that ITC has been aggressively rolling out new cigarettes targeted towards various age groups permitted to smoke as per Indian laws, and across different income groups.

 

"ITC's play in cigarettes is to premiumise the portfolio. It is not that ITC is focussing solely to roll out premium products which are priced INR 17-20 a stick, but to launch premium products in the INR 10 a stick segment as well," a sector analyst with a leading Indian brokerage told Informist wishing not to be named.

 

For instance, ITC already had the Gold Flake mother brand under which it has Gold Flake Premium brand in the INR 10 category. It however, launched Gold Flake Neo Smart at the same price point targeting consumers who are conscious about tar. Gold Flake Premium brand was retained as it already has a large loyal consumer base. Similarly, in the 84 millimetres category, commonly referred to as King size, and priced at INR 17 a stick, ITC launched Classic Alphatec cigarettes despite having several sub brands of the Classic mother brand. ITC usually refers to this strategy as democratisation of premium portfolio.

 

The company’s non-cigarette consumer goods portfolio, however, is expected to feel some pressure amid higher inflation, Prabhudas Lilladher Pvt. Ltd. said in a report. However, other brokerages like Nuvama Wealth Management Ltd. and Axis Securities Ltd. anticipate a 7% revenue growth in the non-cigarette consumer goods products.

 

The hotels business is likely to grow 10-15% during Jul-Sept, according to the brokerages’ estimates.

 

Higher raw tobacco prices would have a mixed effect on ITC. On one hand, it could potentially lead to margin pressures in cigarettes since ITC usually does not increase cigarette prices to make up for commodity inflation. At the same time, it would benefit ITC’s agricultural trading division by generating higher revenue. Nuvama Wealth Management Ltd. said that agricultural sales are likely to grow 5% due to higher tobacco sales.

 

The paper and paperboards division, however, will continue to reel under stress due to cheaper imports and higher pulp costs.

 

ITC's earnings before interest, tax, depreciation, and amortisation are expected at INR 63.7 billion, according to the average of estimates by 10 brokerages. Motilal Oswal Financial Services estimated it the highest at INR 67.2 billion, and Emkay Global Financial Services estimated it the lowest at INR 61.4 billion.

 

Following are the Jul-Sept earnings estimates of ITC based on reports compiled by Informist from 11 brokerage houses:

 

Broker Name	Net Sales (in million rupees)	Net Profit (in million rupees)	EBITDA (in million rupees)
Antique Stock Broking Ltd	1,77,886.00	50,184.00	62,641.00
Axis Securities Ltd	1,76,090.00	49,870.00	62,620.00
Elara Securities (India) Pvt Ltd	1,74,370.00	51,093.00	64,135.00
Emkay Global Financial Services Ltd	1,78,956.00	49,707.00	61,387.00
Kotak Institutional Equities	1,77,722.00	50,792.00	62,722.00
Motilal Oswal Financial Services Ltd	1,87,600.00	51,194.00	67,159.00
Nirmal Bang Equities Pvt Ltd	1,75,243.00	50,046.00	62,211.00
Nuvama Wealth Management Ltd	1,77,492.00	50,032.00	62,371.00
Prabhudas Lilladher Pvt Ltd	1,79,237.00	52,520.00	65,242.00
Sharekhan Ltd	1,76,150.00	50,350.00
YES Securities (India) Ltd	1,78,936.00	52,474.00	66,062.00
Average	1,78,152.91	50,751.09	63,655.00

 

Shares of ITC closed 1.8% up at nealry 497.0 rupees on the National Stock Exchange. End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Akul Nishant Akhoury

 

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