ITC Q4 Results Preview: Cigarette Volume Growth Likely, Margin Pressures To Weigh On Profitability

FMCG heavyweight ITC Ltd. is set to announce its financial results for the January–March quarter on Thursday, with brokerages broadly expecting a mixed performance. Cigarette volumes and sales are expected to grow modestly, but margin pressures from inflation in leaf tobacco and raw materials are likely to weigh on profitability.

Most analysts tracking the FMCG sector view the March quarter earnings as largely stable but unspectacular, with growth driven more by pricing than volume. Persistent input cost pressures and an unfavourable product mix are expected to keep margins under pressure.

As per Bloomberg estimates, ITC's standalone revenue for the March quarter is expected to rise to Rs 16,979.7 crore, compared to Rs 16,398 crore a year ago.

Ebitda is likely to be Rs 6,017.7 crore from Rs 6,162.6 crore, while margin is expected to contract to 29.1%. Net profit is seen falling to Rs 4,942.6 crore.

ITC Q4 Preview (Standalone, YoY)

• Revenue seen at Rs 16,979.7 crore.

• Ebitda likely to be Rs 6,017.7 crore.

• Margin seen at 29.1%.

• Profit expected to be Rs 4,942.6 crore.

Brokerage Views

Jefferies | Rating: Buy | Target Price: Rs 520.31

• Expects cigarette volumes to grow 5% year-on-year, leading to 6% cigarette sales growth and 3% cigarette Ebit growth.

• FMCG business is likely to grow 8% with a 20 basis points margin contraction.

• Agri business is expected to grow 20%, and paper business to grow 5%.

BofA | Rating: Buy | Target Price: Rs 465

• Cigarette volume and revenue growth are estimated at 4% and 6% respectively on an annual basis.

• Overall profit after tax could be flat due to cost pressures, limited pricing power, and weakness in smaller businesses (other FMCG, paper).

• Among large-cap staples, BofA says ITC continues to deliver stable topline trends.

Axis Capital | Rating: Add | Target Price: Rs 500

• Axis Capital expects revenue to be flat, and Ebitda to decline 7% on an annual basis.

• Cigarette volumes are likely to grow 4% and Ebit 3%, with pricing flattening and higher leaf tobacco costs.

• FMCG revenue growth at 5%, but Ebit is likely down 26% due to raw material inflation.

• Paper segment revenue up 3% annually but Ebit is seen to be down 28%.

IIFL Capital | Rating: Buy | Target Price: Rs 485

• Expects gross margin contraction of 128 basis points due to commodity inflation.

• The firm sees aggregate Ebitda growth lagging sales growth, with Ebitda up 3%.

• Consolidated sales growth expected at 9.5%, with cigarette and FMCG-others sales growth of 6% and 4%, respectively.

• Cigarette volumes expected to grow 5% while consolidated Ebit growth is seen at 2.4%.

• FMCG-others and paperboard segments are expected to remain under pressure.

Phillip Capital | Rating: Buy | Target Price: Rs 490

• Cigarette volume growth is likely to moderate to 2% in the fourth quarter.

• FMCG business likely to deliver mid-single-digit price-led growth due to price hikes in atta, biscuits, and snacks.

• Margin pressure to continue in cigarettes (due to leaf tobacco inflation) and FMCG (commodity inflation).

• Overall Ebitda margin expected to remain flat sequentially.

• On a comparable basis (excluding demerged hotel business), Phillip Capital says Q4 sales growth would be 8%.

DAM Capital Advisors | Rating: Buy | Target Price: Rs 525

• Revenue growth is estimated to be 3.4% (8% adjusted for hotels).

• Revenue from the cigarette business is expected to grow 8%, driven by 5% volume growth and favourable product mix.

• FMCG revenue estimated to rise 7%, despite muted demand.

• Agri business likely to grow 11%, supported by firm commodity prices.

• Paper segment expected to remain weak due to high base and softening pulp prices.

• Gross margin expected to decline 400 basis points due to higher tobacco prices, agri business saliency, and FMCG raw material inflation.

• Ebitda margin is likely to decline by 111 basis points to 34% in the fourth quarter.