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ITC Q4 preview: Cigarette volume growth, hotel business outlook eyed

Edelweiss Securities expects ITC's revenues and EBITDA to dip 3.2 per cent and 5.3 per cent year-on-year (YoY), respectively.
ITC is slated to announce its March quarter results for the financial year 2020-21 (FY21) on Friday, June 26. The company, according to analysts, is expected to post up to 14 per cent decline in its cigarette volumes due to hike in excise duty and Covid-19 lockdown. The company's FMCG business may also take some hit while its Hotels business will be impacted most, they say.

During the period under review, ITC's stock dipped 27.7 per cent as compared to a 9 per cent fall in the NIfty FMCG index and 28.65 per cent slump in the S&P BSE Sensex, ACE Equity data show.

Here's a look at what leading brokerages expect from ITC's March quarter numbers.

Edelweiss Securities

The brokerage expects ITC's revenues and earnings before interest, taxes, depreciation, and amortisation (EBITDA) to dip 3.2 per cent and 5.3 per cent year-on-year (YoY), respectively at Rs 11,609.6 crore and Rs 4,318.8 crore while core PAT (profit after tax) is seen at Rs 3,546.1 crore, up 1.8 per cent YoY. Cigarette volumes are expected to drop nearly 8 per cent YoY, owing to excise related price hike combined with 15 days of lockdown during the quarter.

"We expect that the hoarding behaviour of consumers will lead to the FMCG business reporting nearly 6 per cent YoY revenue growth on a base of 7.3 per cent," it said. The brokerage expects Hotels business to be the most adversely impacted by the outbreak of coronavirus leading to a revenue dip of nearly 10 per cent on a strong base of 24.9 per cent. Agri-business is expected to see a 3 per cent YoY fall in revenue while the Paper business should see a revenue dip of 8 per cent, it says.

Emkay Global

It estimates the company's net sales to decline 7.5 per cent YoY and 6 per cent QoQ at Rs 11,286.9 crore. EBITDA is seen at Rs 4,035.6 crore, down 11.7 per cent YoY and 12.5 per cent QoQ while EBITDA margin is pegged at 35.8 per cent, down 170 bps YoY and 264 bps QoQ. Profit before tax (PBT) is estimated to decline 10.9 per cent YoY to Rs 4.350.6 crore. On a sequential basis, the numbers are expected to dip 15.8 per cent. PAT is projected at Rs 3,263 crore, down 4.4 per cent YoY and 21.2 per cent QoQ. It notes that lower Effective tax rate (ETR) is expected to limit PAT decline.

"We estimate a decline of 14 per cent /10 per cent in cigarette volumes/sales, with EBIT decline of 11 per cent," the brokerage says.

HDFC Securities

The brokerage expects cigarette revenues to decline 4.5 per cent YoY, with 6 per cent volume dip YoY. Non-Cigarette revenue is expected to dip by 2.6 per cent with FMCG, hotel, paper businesses to register a de-growth of 3 per cent, 7 per cent, 5 per cent and 3 per cent growth, respectively. Agri business segment, however, is likely to grow 3 per cent during this period.

ITC's net sales are projected to fall 2.2 per cent YoY and 0.6 per cent QoQ to Rs 11,940 crore while EBITDA is seen at Rs 4,420 crore, down 3.3 per cent YoY and 4.1 per cent QoQ while EBITDA margin is estimated at 37 per cent, down 42 bps YoY. Adjusted PAT is expected to fall 1.7 per cent YoY and 10.7 per cent QoQ at Rs 3,370 crore.

Some of the key monitorables include cigarette volume growth, FMCG business EBIT margin, recovery in paper business, and outlook on Agri and hotel businesses.

It must be noted that ITC, in May 2020, announced it had entered into an agreement with the spices major, Sunrise Foods, to acquire a 100 per cent stake in the company. The share-purchase agreement was completed after lockdown was enforced and the final deal is likely to be signed soon. ITC didn’t comment on the deal size, but it is estimated at close to Rs 2,000 crore.

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