ITC Q2 Results Preview: FMCG Uptick, Cigarette Demand Keep Analysts Bullish Despite Near-Term Woes

FMCG heavyweight ITC Ltd. is set to announce its financial results for the September quarter on Thursday. Brokerages remain broadly constructive on ITC, driven by steady cigarette demand and gradual improvement in the FMCG business.

Brokerages expect commentary from FMCG companies to centre on the extent of GST-related trade disruption and its impact on volumes, particularly in rural markets. Analysts say demand normalisation, margin trends amid stable input costs, and early festive-season indicators will be key to assessing the recovery trajectory. Several companies are also expected to incur one-off GST transition costs, as they ran trade promotions to clear older, higher-priced inventory ahead of the change.

As per Bloomberg estimates, ITC's standalone revenue for the September quarter is expected to rise to Rs 19,466 crore, compared to Rs 19,150 crore a year ago.

Ebitda is likely to be Rs 6,390.7 crore from Rs 6,335 crore, while margin is expected to contract to 32.8%. Net profit is seen rising to Rs 5,131 crore.

• Revenue seen at Rs 19,466 crore.

• Ebitda likely to be Rs 6,390.7 crore.

• Margin seen at 32.8%.

• Profit expected to be Rs 5,131 crore.

• The cigarette business is valued at a premium to global tobacco peers because India’s cigarette volumes are growing, unlike developed markets.

• Downside risks flagged by Goldman Sachs include stricter regulations on the cigarette industry in India, and the rise of alternative cigarette products.

• The brokerage predicts lower-than-expected margins in the FMCG business

• BofA values ITC at a premium to its historical average due to strong cigarette momentum.

• The brokerage values the cigarette business at 15.5x Sept-27E Ebitda, FMCG at 5x Sept-27E revenue, and the agri and paper/packaging businesses at 8.5x and 10x Ebitda, respectively.

• Downside risks include higher taxation or regulation on cigarettes, weaker volumes, higher capex in non-FMCG units, and potential stake sale overhang from BAT.

• Upside triggers include premiumisation, stronger FMCG margins, value unlocking from business restructuring, and accretive M&A.

• Nomura expects ITC to continue delivering mid-single-digit cigarette volume growth, higher than its historical average.

• However, this growth is slower than peers, who are growing at over 25%.

• Cigarette margins are likely to remain under pressure in the near term.

• Nomura expects a benefit from cycling a lower base, leading to marginal improvement in earnings.

• Cigarette EBIT growth is projected at around 6%, compared to about 4% in recent quarters.

• JPMorgan forecasts 7% revenue growth for ITC’s cigarette business, driven by 6% volume growth.

• The brokerage expects modest 5% growth in the Other FMCG segment.

• Weak performance in the education and stationery category is dragging down FMCG growth.

• Nirmal Bang continues to prefer ITC within consumer staples.

• The brokerage expects ITC’s overall revenue to decline 5.1% annually.

• Cigarette sales are projected to grow 5%, with mid–single-digit volume growth.

• Cigarette EBIT is forecast to increase 5.8% YoY in the second half of the fiscal.