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Informist, Thursday, Jul. 31, 2025

 

By Avishek Rakshit

 

KOLKATA – Continued stress in its paper and paperboards business owing to dumping of imported goods combined with moderate cigarette volume growth and muted revenue growth in its non-consumer products business is expected to keep the profit growth of ITC Ltd. tepid in the June quarter. Besides, increased prices of key commodities are likely to exert pressure on the margins.

 

The cigarettes-to-soaps major is expected to report a 1.3% on-year growth in its net profit for the June quarter to INR 49.8 billion, according to the average of estimates from 12 brokerages. The company's revenues are expected to increase 5.4% on year to INR 179.2 billion, according to the average of estimates. On a trailing basis, the net profit is expected to rise 2.2% and the revenue is likely to rise 3.9%. ITC will declare its earnings for the June quarter Friday.

 

The highest estimate for net profit and revenue, at INR 54.6 billion and INR 201.6 billion, respectively, are both from Dolat Capital Market Pvt. Ltd. On the other hand, Nirmal Bang Equities Pvt. Ltd. is the most cautious on the company's profit and revenue, projecting these the lowest at INR 45.3 billion and INR 149.7 billion, respectively.

 

ITC had reported a net profit before exceptional items of INR 49.2 billion in the June quarter last year on revenues of INR 170.0 billion. It had reported a net profit of INR 48.7 billion in the March quarter on revenues of INR 172.5 billion.

 

Since the demerger of its hotels business on Jan. 1, ITC has been reporting profits from the hotels operation as part of its net profit, classified as profit from discontinued operations. Sector analysts have not considered this profit from the hotels business in their projections.

 

Elara Securities (India) Pvt. Ltd. said consumer demand in the urban centres continued to remain weak during Apr-Jun, although some improvement was noticed on a trailing basis. However, it is still lower as compared to pre-pandemic levels. On the other hand, demand from rural India continued to remain strong.

 

However, Nuvama Wealth Management Ltd. and Kotak Institutional Equities estimated ITC's non-cigarette sales will grow 5% on year despite muted market conditions. Although non-cigarette consumer goods sales account for 30% of the company's top line, it accounts for a meagre 6% of ITC's pre-tax profit. At its annual general meeting Friday, Sanjiv Puri, ITC's chairman and managing director explained to shareholders that the low profit contribution of the non-cigarette consumer division to the company's total profit is on account of gestation costs that this division is incurring as ITC is expanding its product portfolio and building assets.

 

The growth of the cigarettes business is also expected to have slowed down during the June quarter, Kotak said while estimating a 4.5% on-year volume growth and 6% gross revenue growth from this business. ITC's cigarette volume growth was 6% in the year-ago quarter and 5% in the March quarter. Despite ITC's move to diversify its portfolio and derisk the company from the cigarettes business, cigarettes continue to remain the most important business for ITC and make up 44% of its total revenues and over 80% of its pre-tax profit.

 

Projecting a net revenue growth of 5% from the cigarettes business, Nuvama expects the cigarettes division to report an earnings before interest and tax, or EBIT, growth of 3.4% on year in the June quarter. In the trailing quarter ITC's net revenue from cigarettes grew 6.4% and the EBIT grew 6.5%. A lower projection of sales and EBIT growth in the June quarter of the current financial year is expected to put pressure on ITC's revenue, profit, and margins.

 

Nomura Equity Research, which estimated a 4?IT growth in ITC's cigarettes business for the June quarter, said higher leaf tobacco prices will continue to negatively impact ITC margins. It also said the office stationery business may feel the pinch of lower pricing, which can eventually lead to low-single-digit revenue growth for its overall consumer goods business. ITC sells notebooks and office stationery under the Classmate brand, which is part of the consumer goods portfolio.

 

However, higher commodity prices are expected to boost ITC's revenues from its agricultural business which procures raw materials for the consumer goods division and exports commodities and value-added commodity products. Kotak estimates a 10% top line growth from ITC's agricultural operations.

 

The paper and paperboards division will continue to report subdued growth owing to weak demand in India and abroad, weaker net realisations from sales, and cheap Chinese supplies flooding the markets, thereby pulling down domestic prices, brokerages said.

 

ITC is expected to report a marginal on-year decline in its June quarter earnings before interest, tax, depreciation, and amortisation at INR 62.8 billion, according to the average of estimates from 12 brokerages. Nuvama said the overall gross margin may contract 262 basis points on year and the EBITDA margin may fall 153 basis points on year to 35.5%.

 

Thursday, shares of ITC closed at INR 411.95 on the National Stock Exchange, up 1.07%. The shares are down 5.3% since the company announced its March quarter earnings in May.

 

Of the 20 research reports on the company available with Informist, 17 have a 'buy' rating on the stock at an average target price of INR 512. Two brokerages have a 'hold' rating on the scrip and one has a 'sell' rating.

 

Following are the Apr-Jun earnings estimates for ITC Ltd based on reports from 12 brokerage firms in descending order of the estimate of net profit:
 

Broker Name	Net Sales (in million rupees)	Net Profit (in million rupees)	EBITDA (in million rupees)
Dolat Capital Market Pvt Ltd	2,01,578.00	54,594.00	70,879.00
Nuvama Wealth Management Ltd	1,79,450.00	50,614.00	63,705.00
JM Financial Institutional Securities Pvt Ltd	1,92,598.00	50,312.00	62,756.00
Elara Securities (India) Pvt Ltd	1,75,003.00	50,293.00	62,397.00
Systematix Shares and Stocks (India) Ltd	1,76,820.00	50,166.00	63,061.00
Antique Stock Broking Ltd	1,80,077.00	49,897.00	63,077.00
Prabhudas Lilladher Pvt Ltd	1,80,201.00	49,772.00	61,809.00
YES Securities (India) Ltd	1,80,089.00	49,740.00	63,130.00
Emkay Global Financial Services Ltd	1,83,670.00	49,671.00	63,068.00
Kotak Institutional Equities	1,74,742.00	49,185.00	62,264.00
Nomura Equity Research	1,76,534.00	48,442.00	60,746.00
Nirmal Bang Equities Pvt Ltd	1,49,690.00	45,329.00	56,882.00
Average	1,79,204.33	49,834.58	62,814.50

 

End

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

 

Edited by Deepshikha Bhardwaj

 

 

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