Active Stocks
Fri Apr 19 2024 15:56:00
  1. Tata Steel share price
  2. 162.10 1.31%
  1. Tata Motors share price
  2. 963.20 -0.84%
  1. NTPC share price
  2. 350.90 -0.14%
  1. ITC share price
  2. 424.80 1.40%
  1. Power Grid Corporation Of India share price
  2. 281.70 0.54%
Business News/ Markets / Mark To Market/  There is neither smoke nor fire in ITC’s June quarter financial results

There is neither smoke nor fire in ITC’s June quarter financial results

ITC’s fast-moving consumer goods (FMCG) business saw a revenue growth of 6% which is not extraordinary
  • The cigarette business’ Ebit increased by 8% year-on-year during April-June
  • Premium

    Cigarette-to-soap maker ITC Ltd’s shares touched a new 52-week low of 257.65 on the National Stock Exchange on Monday. Not without reason. Its June quarter results, announced post market hours on Friday, are far from inspiring.

    Volume growth of its mainstay cigarettes business, which accounted for as much as 86% of the company’s overall June quarter Ebit (earnings before interest and tax) is a key disappointing factor.

    “ITC’s Q1FY20 missed slightly operationally as cigarette volumes grew 3% year-on-year (versus our 4% expectation), and cigarette Ebit grew 8% yoy (1% below estimate)," said Varun Lohchab, an analyst at Jefferies India Pvt. Ltd.

    Kotak Institutional Equities’ analysts point out, “A modest volume growth despite two years of stable taxation could be due to share loss to illicit/smuggled volumes, higher competitive intensity in select sub segments and perhaps some change in consumer preferences."

    Cigarette revenues increased by 6% helped by volume growth and price/product mix. On the other hand, ITC’s fast-moving consumer goods business (non-cigarettes) saw a like-for-like revenue growth of 8%, which is hardly extraordinary. However, it is in keeping with the broader trends of consumption slowdown being witnessed in the economy.

    Revenue growth from other businesses—hotels, agri, and paperboards, paper and packaging— was in double digits. The paper business posted an Ebit growth of about 12%. However, Ebit growth in the other two segments lagged relatively. Agri business Ebit increased at a slower pace of 4%. Depreciation relating to new properties impacted hotels’ profitability, resulting in an Ebit decline of 21%. For better or worse, contribution from these segments to profits is relatively smaller at the moment and as such doesn’t move the needle dramatically for ITC.

    Overall, the company’s net profit of 3,174 crore is marginally better than Bloomberg’s consensus estimate of 3,153.70 crore. Note that a whopping 54% growth in other income to 620 crore helped ITC’s June quarter net profit growth substantially.

    The company’s shares eventually closed lower by 1.7% on Monday, a day when the Nifty 50 index declined 1.2%. The stock trades at about 23 times estimated FY20 earnings. Agreed, ITC’s valuations are not as demanding as that of some other consumer goods’ firms. But, the risk of an increase in cigarette taxes lingers.

    “We believe that the slowdown of cigarette volumes and a possible tax hike may cause downsides to earnings. The recent stock underperformance limits downsides, but a tax increase in the near term would be negative, putting further pressure on its volumes/ Ebit," wrote analysts from Emkay Global Financial Services Ltd in a report on 4 August.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    Pallavi Pengonda
    Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 05 Aug 2019, 10:30 AM IST
    Next Story footLogo
    Recommended For You

    Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

    Let’s get started
    Switch to the Mint app for fast and personalized news - Get App