ITC Q2 profit seen up 6%, cigarette business key to watch out after GST

Cigarette-hotel-to-FMCG major ITC will announce its July-September quarter earnings on October 27. It is an important quarter to watch out for after the GST implementation with effect from July 1, especially for its cigarette division.

The GST Committee had set the tax rate lower for cigarette business but then revised higher to pre-GST levels. Hence, the stock had seen roller coaster ride, hitting a life high of Rs 353 on July 3 and then falling 13 percent on July 18. It fell 16.2 percent during the quarter.

Analysts expect cigarette volumes to decline 4-5 percent (against 1 percent growth in Q1FY18 and 4 percent in Q2FY17) and realisation growth at around 11-12 percent for the quarter ended September 2017.

In last nine months ended September 2017, ITC increased the price of cigarette portfolio by around 14 percent.

Profit after tax is expected to increase 6.1 percent year-on-year to Rs 2,652 crore and revenue may rise 6.7 percent to Rs 14,525 crore, according to average of estimates of analysts polled by CNBC-TV18.

Revenue should be closely watched as it may differ due to GST accounting. Excise duty has been removed after GST rollout.

EBITDA (earnings before interest, tax, depreciation and amortisation) is likely to increase 5.1 percent to Rs 3,815 crore but margin may contract 40 basis points to 26.3 percent compared with same quarter last fiscal.

Analysts expect good performance from its FMCG business. Revenue growth could be 10-12 percent and EBIT may be positive for the quarter YoY.

Paper business may see 2-3 percent revenue growth YoY.

Revenue growth & operational improvement in hotels business and margin improvement in agri trading business will also be closely watched.