ITC Q1 Preview: Weakness in agri, paperboard sectors may dent Ebitda margin

ITC Q1 Preview: Fast moving consumer goods (FMCG) company ITC will announce its June quarter of financial year 2025 (Q1FY25) results on Thursday, August 1, 2024.

On the bourses, ITC stock has rallied 14.1 per cent over the past month. The stock hit an all-time high of Rs 510.60 on July 24, 2024. This was the first instance of ITC stock crossing Rs 500-mark.

That apart, last week, Sanjiv Puri, chairman and managing director told shareholders at the company’s 113th annual general meeting that ITC will invest Rs 20,000 crore over the next five years as it has “unwavering confidence” in India’s economic growth.

He further said ITC was committed to assist the country in becoming the world’s third-largest economy through building a “future tech, climate positive, innovative and inclusive national enterprise of pride”.

Given these developments, let's take a look at what brokerages are expecting from ITC Q1FY25 results:

Motilal Oswal 

Motilal Oswal analysts predict a 3 per cent year-on-year volume growth in the Cigarettes segment for Q1 FY25. While rural recovery is not yet evident in the first quarter, anticipated government initiatives are expected to boost consumption.

They forecast a modest 70 basis point improvement in gross margin year-on-year for the same period. The performance of the agri and paper & packaging segments will be closely watched, analysts said.

Based on these factors, Motilal Oswal analysts project cigarette volume growth of 2.5 per cent. They estimate revenues will reach Rs 18,360 crore, marking a 7 per cent increase year-on-year. Ebitda is expected to be Rs 7,070 crore, up 5.9 per cent, with an Ebitda margin of 38.5 per cent. Adjusted PAT is anticipated to be Rs 5,430 crore, reflecting a 6.3 per cent rise.

Axis Securities 

Axis Securities analysts project a 6 per cent revenue growth, driven by a 6 per cent year-on-year increase in the cigarettes segment (2 per cent volume growth), 7 per cent growth in FMCG, and 8 per cent growth in hotels. However, they anticipate a decline in the paper segment and flat performance in agri.

Ebitda margins are expected to decrease year-on-year due to weaker performance in the agri and paperboard sectors.

Key factors to monitor include the demand outlook for rural versus urban areas, competitive intensity, raw material trends, and the performance of hotels and agribusiness.

Thus, analysts forecast revenue to reach Rs 16,538 crore, a 5.5 per cent increase year-on-year. Ebitda is projected at Rs 6,349 crore, up 1.6 per cent, with an Ebitda margin of 38.4 per cent. PAT is expected to be Rs 4,982 crore, also reflecting a 1.6 per cent increase.

Elara Capital 

According to Elara Capital, FMCG product demand saw an improvement in Q1FY25, largely driven by strong performance in the Summer portfolio. Initially, demand was sluggish, but it picked up momentum towards the end of the quarter. Rural markets outperformed urban ones, benefitting from a low base effect.

The Summer portfolio, which includes cold beverages, prickly heat powder, and glucose, saw robust sales due to the extreme heat affecting North and Central India. However, the heat had a negative impact on other categories, such as hot beverages (tea) and household insecticides (HI). Analysts at Elara Capital stressed that a strong revival in rural demand is crucial for the FMCG sector, with companies anticipating that a favourable Monsoon will boost the rural economy.

Given these factors, analysts project that ITC will report a revenue of Rs 16,736.3 crore, reflecting a 5.7 per cent increase year-on-year; Ebitda of Rs 6,411.6 crore, up 2.6 per cent Y-o-Y; and an adjusted profit of Rs 5,050.9 crore, marking a 3 per cent Y-o-Y rise.