ITC Misses Q1 Net Estimates, But Cigarette Volume Beats Street

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ITC shares were choppy on Friday after India’s biggest cigarette maker missed earnings estimates in the June quarter. ITC on Thursday posted a net profit of Rs 2,385 crore on net revenue of Rs 10,054 crore in Q1, which was lower than consensus expectations.

However, operating margins at ITC’s cigarette business rose and volumes also beat expectations, leading to buoyancy in shares, analysts said. ITC’s cigarette business contributes over 80 per cent to the company’s profit, so robust performance in this segment is critical for ITC, they added.

ITC’s cigarette revenue grew 8 per cent year-on-year to Rs 5,030 crore, while sales of FMCG and others businesses rose 9.5 per cent to Rs 2,700 crore in Q1, said Religare Securities. FMCG and other businesses however posted EBIT loss of Rs 4.5 crore, it added.

According to ICICI Securities, ITC’s cigarette volumes rose after 12 quarters, which is a key positive. Interestingly, ITC managed to outperform in the cigarette segment in a quarter that saw some disruption in operations due to the introduction of bigger graphic warnings. ITC also hiked cigarette prices by 5-6 per cent during the quarter, analysts said.

Kaustubh Pawaskar, FMCG analyst at Sharekhan told NDTV Profit that ITC’s volume growth was “satisfactory”.

“We were expecting 2 per cent volume growth in Q1,” he said, noting that ITC had managed to post 3 per cent volume growth in the June quarter.

According to Mr Pawaskar, if the company does not go for another round of price increase and if there are no new taxes by state governments, it would augur well for cigarette volume sales for ITC.

ITC’s agri-business grew 20 per cent year-on-year to Rs 2,800 crore off a soft base, while segment EBIT margins fell 160 basis points year-on-year, Religare said. ITC’s hotels/paper businesses declined 0.2 per cent and 1.6 per cent year-on-year respectively, with hotel EBIT at Rs 1.2 crore, the brokerage said.

Religare retained its “buy” call on ITC with a target price of Rs 270.

As of 11.06 a.m., ITC shares traded 0.40 per cent lower at Rs 249.60, underperforming the broader Nifty that traded flat.