December quarter volume performance marks an improvement from the double-digit decline in cigarette volumes seen in the previous three quarters, based on estimates by analysts
Shares of ITC Ltd fell close to 4% on Friday on NSE after the company’s December quarter results failed to excite investors. “ITC’s 3QFY21 earnings were muted and lower even versus our subdued expectations," said analysts from JM Financial Institutional Securities Ltd in a report on 11 February.
Cigarette volumes are estimated to have declined in single digits this time around. Analysts from ICICI Securities Ltd point out, “Cigarette volume declined about 7% year-on-year in 3QFY21 (our view) - impacted by (1) price hikes (during 1HCY20), (2) urban markets are yet to return to normalcy (for the category consumption)." Nonetheless, December quarter volume performance marks an improvement from the double-digit decline in cigarette volumes seen in the previous three quarters, based on estimates by analysts.
“(ITC’s) progression isn’t strong enough compared to that seen in some of the other consumption categories," point out JM Financial analysts commenting on the sequential cigarette volume improvement.
Cigarettes are ITC’s mainstay, contributing a lion’s share of its earnings.
Indeed, some do believe volumes are set to get better in the coming days. That’s primarily because the exit volume decline in the month of December is expected to be much lower than the full quarter volume decline owing to the month-on-month improvement. “Cigarette consumption frequency is directly impacted by consumer mobility, which is improving. Over the next few months, we would see a larger proportion of offices and universities reopen and consumer socialising occasions will also increase," said analysts from Credit Suisse Securities (India) Pvt. Ltd in a report on 12 February.
While investors keep a tab on that, it’s worth noting that growth in ITC’s fast-moving consumer goods (FMCG) has moderated. Comparable FMCG revenues for the December quarter were up 11% year-on-year, down from 18% growth seen in the September quarter. FMCG performance in the December quarter was helped by robust growth in health & hygiene, noodles, spices, dairy, agarbatti and matches. Even so, a decline in at-home consumption and other options being available to consumers post unlocking may well have capped growth last quarter.
On the brighter side, ITC’s hotels business turned Ebitda positive in the December quarter. Ebitda is earnings before interest, tax, depreciation and amortization.