ITC Q4 Preview: Consolidated profit may rise 10-12% on 10% growth in revenues

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Homegrown FMCG major ITC Limited (ITC) is expected to report a healthy growth of 10-12 percent on-year in consolidated profit after tax (PAT) for the fourth quarter of 2021-22. The company will declare its results on May 18. Sequentially, however, the profit is likely to remain flat.

Experts attribute the decline in profit to the year-on-year decline in in-home consumption and erosion of margins due to inflationary pressure on input costs.

Experts expect the Kolkata-based cigarette-to-hotel conglomerate to report consolidated earnings of Rs 4,100–4,250 crore for the quarter ended March 2022.

Consolidated revenues for India’s largest cigarette manufacturer are expected to inch higher by 10 percent during the quarter compared to the same period last year, while on a sequential basis, the revenues are seen declining by 6-8 percent.

Brokerages expect the company to report a consolidated revenue of Rs 14,800–15,600 crore for the reported quarter.

The company had recorded consolidated PAT of Rs 3,748 crore during the corresponding period last year on revenues of Rs 13,295 crore. PAT for the previous quarter of the current financial year stood at Rs 4,156 crore when the company had registered revenues of Rs 15,862 crore.

Brokerage views

Brokerages expect a healthy growth across its business of cigarettes, FMCG, hotels and paperboards with the exception of agri-business which is likely to remain flat.

According to a report from the research and brokerage firm Edelweiss Research, cigarette volume is expected to rise 9 percent YoY on base of negative 5 percent (Q3FY22 saw 9.5 percent YoY increase on base of negative 12 percent) and "we expect FMCG business to report 7 percent YoY growth on base of 7.5 percent (Q3FY22 saw 2.9 percent YoY growth on base of 15.4 percent)”.

The brokerage expects the hotels business to grow 150 percent YoY on base of negative 57.4 percent (Q3FY22 saw 300 percent YoY growth on base of negative 80.8 percent), while agri business is likely to remain flat on base of 45 percent (Q3FY22 saw 7 percent fall on base of 12.8 percent). Paperboard business should also see a 15 percent YoY growth on 13.5 percent base (Q3FY22 saw 38.5 percent YoY growth on negative 5 percent base).

“While its FMCG-Other business is likely to face severe input cost pressures, ITC is relatively insulated, given the pricing power in its Cigarettes business” said a report from Motilal Oswal Financial Services Ltd. Also, staples are likely to report a 7.4 percent sales growth over Q4FY22, led by price increases.

Brokerage firm Kotak Institutional Equities pegs a year-on-year growth of 12.5 percent in cigarette sales aided by 2.5 percent favourable price-mix. “We forecast 13.9 percent YoY growth in cigarette EBIT (+2.7 percent growth on 3-year CAGR basis) and in the FMCG segment (standalone), we estimate 11 percent YoY revenue growth partly amalgamated by Sunrise acquisition”, the brokerage said in its report.

The EBIT (earnings before interest and tax) margins for the FMCG business are seen declining by 70 bps on quarter to 5.2 percent due to inflationary pressure on gross margin.

ITC’s hotel business is expected to clock revenues of Rs 500 crore for the quarter with an EBIT margin of 13.6 percent.

Broker Estimates

Edelweiss Research pegs the revenues at Rs 14,666 crore for the quarter, growing at 10.3 percent on year while generating a PAT of Rs 4,198 crore, a growth of 12 percent over the corresponding period a year ago. Sequentially, it sees a decline of 7.5 percent in the revenues for the quarter resulting in a mere 1 percent growth in PAT over the previous quarter.

Kotak Institutional Equities forecasts revenues of Rs 14,574 crore, a YoY growth of 9.6 percent but a sequential decline of 8 percent. It expects the PAT to grow 14 percent on year to Rs 4,277 crore, a sequential growth of 3 percent.

HDFC Securities has worked out the revenue of Rs 15,600 crore for the quarter with a growth of 10.2 percent over the corresponding period last year and a sequential decline of 7 percent. PAT is expected to come around Rs 4,100 crore, a YoY growth of 9 percent and a sequential decline of 1.7 percent.

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