ITC Q1 preview: Low base, cigarette business to spur revenue, profit growth

ITC Q1 PREVIEW: During the quarter ended June, shareholders lost over 7 per cent of their wealth parked in ITC

ITC Q1 preview: Unlike its lacklustre stock performance at the bourses since the past one year, ITC is likely to post a strong show in the June 2021 quarter (Q1FY22) when it posts its results on Saturday, July 24, helped by a low base and recovery in cigarettes sales, say analysts. They eye a solid double-digit profit and revenue growth on a yearly basis, although the quarter-on-quarter (QoQ) performance could disappoint.

During the quarter ended June, shareholders lost over 7 per cent of their wealth parked in ITC whereas Nifty50 offered 7 per cent returns during the same period.

The company has been in the news recently on account of government's plans to offload its stake held via Specified Undertaking of the Unit Trust of India (SUUTI), higher dividend to the parent company (BAT) and the company suing a blogger for defamation.

What now remains to be seen is if the stock can snap out of the range following Q1 results that it has been stuck in for a few months. That said, on the earnings front, analysts expect profit after tax (PAT) to grow between 21-53 per cent year-on-year (YoY) while revenue is seen in the range of Rs 22-35 per cent. In quarterly terms, the figures could slide in double-digits.

Here's a look at what top brokerages are saying:

ICICI Direct

We expect ITC to witness a 29.3 per cent YoY revenue growth led by 33.7 per cent growth in the cigarettes segment, mainly on account of severe adverse sales in base quarter, ICICI Direct opined. It projects Q1FY22 revenue at Rs 12,284.9 crore as against Rs 9,501.75 crore posted in corresponding quarter last year. According to the brokerage, QoQ, revenue could fall 13.22 per cent from Rs 14,156.96 crore posted in the preceding quarter.

"Though we believe cigarettes sales would have been impacted due to second Covid-19 wave, stocking at dealers levels in April would have offset the negative impact. Similarly, paper segment sales are expected to grow 50.4 per cent with sustained recovery in user industry. FMCG segment is likely to witness growth of 12.8 per cent during the quarter. We expect 19.6 per cent sales decline in agri segment due to high

base and muted hotels segment sales due to second Covid-19 wave," the brokerage said in a note.

Operating margins are likely to expand 355 bps YoY to 31.4 per cent while we expect net profit to grow 33.4 per cent YoY to Rs 3,125 crore, it added. ITC's net profit in June 2020 quarter came in at Rs 2,342.76 crore. Sequentially, the profit is seen declining 3.3 per cent from Rs 3,748.41 crore posted in March quarter

 this year.

Sharekhan

Cigarette business revenue is expected to increase by 28 per cent with volume growth of 32-33 per cent, Sharekhan analysts said, adding that non-cigarette FMCG business is expected to grow by 12-13 per cent. Amid these projections, it pegs Q1 revenue at Rs 11,542.2 crore, up 21.5 per cent YoY. Sequentially, it could decline by 18.5 per cent.  

Meanwhile, it sees June quarter profit at Rs 2,883.6 crore, implying a growth of 23.1 per cent, yearly. On QoQ basis, the figure is expected to decline by the same quantum.

Better operating leverage and low base would help operating margin to improve by ~200 bps YoY to 29.8 per cent but fall ~170 bps, sequentially.

Motilal Oswal Financial Services

This brokerage expects cigarette volume to grow 22 per cent. As for other FMCG sales, it sees demand to remain robust. Overall, it pegs Q1FY22 revenue growth at 20 per cent YoY to Rs 11,418.2 crore but a sequential decline of 19 per cent.

Gross margin and Ebitda margin are likely to expand 30 bps and 530 bps YoY, respectively.

Net profit for the quarter, as per the brokerage, is likely to rise 42 per cent on a yearly basis to Rs 3,321.9 crore. "Outlook for Agri and hotel businesses will key monitorable," the brokerage said.

Phillip Capital

The brokerage expects the PAT to grow 53 per cent on a softer base to Rs 3,584.5 crore but decline 4.4 per cent QoQ.

"Cigarette volume would recover, although, they will still remain lower than pre-Covid levels. The tailwinds for FMCG business would recede versus the first lockdown," the brokerage said. It pegs Q1 revenue at Rs 12,899 crore, up 35.75 per cent YoY and down 9 per cent.

Ebitda margin to see c 420 bps expansion owing to favourable product mix to 34.1 per cent from 29.7 per cent in the same quarter last year.