New Delhi, Aug 5: Varun Lohchab, analyst at Jefferies India Pvt. Ltd, points out that ‘ITC’s Q1FY20 missed slightly operationally as cigarette volumes grew 3 per cent year-on-year (versus our 4 per cent expectation).’ Note that cigarettes form a big chunk of ITC’s profit contribution. For the June quarter, cigarettes accounted for as much as 86 per cent of the company’s overall earnings before interest and tax, or Ebit. The cigarette business’ Ebit increased by 8 per cent year-on-year during April-June. To put it in perspective, the growth was 1 per cent below Jefferies’ estimates.
ITC’s fast-moving consumer goods (FMCG) business saw a revenue growth of 6 per cent which is not extraordinary and is largely in line with broader consumption trends, given the slowdown in the economy. Revenue growth from other businesses–hotels, farm, and paperboards, paper and packaging–was in double digits, which is nothing to complain about. However, the contribution from these segments to profits is relatively low at the moment. As such then, these segments don’t move the needle dramatically for ITC.
Overall, the company’s net profit of Rs 3,174 crore was marginally better than a Bloomberg consensus estimate of Rs 3,153.70 crore. Note that a whopping 54 per cent growth in other income to Rs 620 crore helped ITC’s June quarter net profit growth substantially. ‘ITC’s 1Q performance was soft versus its financial year 2019 show but in-line with FMCG peers, said HDFC Securities Institutional Research in a report on 5 August.
What’s more, outlook isn’t inspiring. ‘We expect 1Q growth trajectory to replicate over FY20, led by higher base of cig (cigarette) volume growth and consumption slowdown, said analysts from HDFC Securities. On Monday, shares of ITC traded nearly 2 per cent lower, in line with the broader markets, with the Nifty 50 index down 1.6 per cent.