Cigarette-FMCG-to-hotel major ITC is likely to report moderate growth in profit due to lower tax cost, but lower volumes in cigarette business could hit revenue during the quarter-ended March 2020. The company will announce its quarterly earnings on June 26.
Cigarette business is likely to be impacted by hike in excise duty and COVID-19-led nationwide lockdown during the quarter. Hence, brokerages expect 5-6 percent decline in volumes, though realisation may be higher due to price hike.
In case of FMCG segment, brokerages see around 5 percent revenue growth following demand for essential goods like foods and hygiene products, hence there could be margin expansion during the quarter. However, other segments are expected to get impacted by lockdown for more than a week in March.
"We model a 0.4 percent YoY decline in cigarette sales led by 5 percent decline in volumes and about 4.5 percent improvement in realizations. We forecast a 1 percent YoY decline in cigarette EBIT," said Kotak Institutional Equities which sees 4.3 percent fall in revenue and 6.1 percent growth in profit for the quarter YoY.
The brokerage further expects 2 percent and 23 percent YoY decline in FMCG and Hotels segment due to COVID-19. "We expect margin expansion in FMCG (up 60 bps YoY to 4.6 percent PBIT margin) and a sharp decline in the PBIT margin of Hotels segments to 6.6 percent from 17.4 percent."
Narnolia also feels other FMCG segment is expected to report moderate revenue growth of 5 percent YoY considering the segment to be a part of essential services that will be continue to serve the consumers under this outbreak.
ITC, under Savlon brand, made two launches during the lockdown period, advanced hand sanitizer - Savlon Hexa and Surface Disinfectant Spray is the second consecutive launch.
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On the operating front, overall earnings before interest, tax, depreciation and amortisation (EBITDA) may decline marginally but there could be margin expansion due to cigarette and FMCG businesses.
Overall, brokerages said going ahead, cigarette volume, other FMCG revenue growth and demand outlook, lockdown impact and price hike in cigarettee if any would be key things to watch out for.
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