ITC may see double-digit profit growth in Q2 on tax cut, 2-4% rise in cigarette volume


Cigarette-hotel-to-FMCG major ITC is expected to report double-digit year-on-year growth in Q2 profit, largely due to lower tax expenses. Price hike in select cigarettes brands and likely rise in FMCG margin may also boost bottomline.

The stock fell more than 10 percent year-to-date, underperforming Nifty FMCG index (up 4.4 percent in same period) and Nifty (up seven percent).

Brokerages expect Q2 profit growth to be in the 20-34 percent range compared to same period last year. “Reduction in the tax rate to 25.2 percent (32.4 percent in Q2 FY19) on account of the cut in corporate taxes by the government will lead to PAT growing ahead of EBITDA,” said Edelweiss, which expects profit to increase 26 percent YoY.

Revenue from operations in quarter-ended September 2019 could be around 6.5 percent, driven by FMCG, hotels and agri segments. Brokerages expect FMCG – others and hotel segments to report double-digit revenue growth, while paper and agri businesses could clock more than five percent growth.

Cigarette business, which contributed more than 40 percent to total revenue, may report 2-4 percent volume growth and 3-4 percent increase in realisation compared to corresponding quarter of last year. Brokerages expect cigarette EBIT to grow 7-8 percent.

“We model 2.5 percent YoY increase in cigarette volumes and 3.5 percent increase in realisation (portfolio-level),” said Kotak Institutional Equities, which sees overall EBITDA growth of 8.7 percent YoY and 80 bps rise in margin.

Motilal Oswal expects around nine percent growth in ITC’s EBITDA and 90 bps increase in margin for the quarter under review.

Key things to watch out for would be trends in cigarette volumes, pricing action, resultant change in mix, and demand outlook for other FMCG businesses.

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