New Delhi – ITC Limited is bracing for a challenging first quarter, with analysts predicting a significant decline in net profit and sales, largely attributed to a sharp fall in cigarette volumes. Brokerage firms like Kotak Institutional Equities, Axis Securities, and Emkay Global have all revised their expectations downwards ahead of the company's Q1 results.
Cigarette Segment Faces Headwinds
The core cigarette business, a major revenue driver for ITC, is expected to experience a substantial downturn. Kotak Institutional Equities forecasts a 9% drop in cigarette segment volumes and a 20% decline in sales year-on-year. Similarly, Emkay Global projects a 10% volume decline and a 20% fall in Earnings Before Interest and Taxes (EBIT) for the segment.
This anticipated slump is primarily due to a cumulative tax hike of approximately 45% on cigarettes. Analysts note that while ITC has implemented staggered price increases, these have not been sufficient to fully offset the impact on margins. The company's strategy is expected to shift towards calibrated price adjustments to protect its legal market share and deter consumers from illicit products.
Overall Financial Outlook
Across the board, ITC's standalone net profit is expected to fall by 11-13% year-on-year. Axis Securities predicts a 13% drop in net profit to Rs 4,272 crore, with sales declining by 10.2% to Rs 17,597 crore. Emkay Global sees net sales declining by 1% to Rs 19,630 crore, with net profit at Rs 4,359 crore.
The overall margin is also projected to contract significantly, both year-on-year and sequentially, due to the inadequate price hikes in the cigarette segment and adverse mix shifts.
Mixed Performance in Other Segments
- Other FMCG: This segment is a brighter spot, with Axis Securities expecting a healthy 12% year-on-year growth. Emkay Global also anticipates 12% revenue growth and an EBITDA margin expansion of 60 basis points.
- Paperboards, Paper & Packaging: This segment is projected to show modest growth, with Axis Securities forecasting a 6% year-on-year increase and Emkay Global predicting 10% revenue growth.
- Agri Business: Expected to remain under pressure, with Axis Securities predicting a 2% decline and Emkay Global forecasting a 10% revenue decline, citing shipping disruptions and policy-related headwinds.
Looking ahead, Kotak Institutional Equities suggests that the EBIT trajectory for the second quarter might improve, aided by recent calibrated price hikes in certain cigarette categories and a focus on EBIT-neutral alternatives like premium variants and new product introductions.