FMCG major ITC Ltd is expected to post a healthy profit growth of 7-10 per cent during the second quarter of FY24, driven by sales of cigarettes, price hikes in FMCG products, and strong demand in the hotels segment. ITC will announce its Q2FY24 earnings on October 19. According to brokerage firms and analysts, ITC is expected to post Q2FY24 profit at Rs 4910.00 crore and sales at Rs 18,370.00 crore. Margins are seen expanding on a yearly basis amid a softening raw-material prices, but may see some contraction sequentially.
According to a report by HDFC Securities, ITC is expected to post 6 per cent YoY growth in cigarette revenue, with volume growth of 5 per cent YoY (5 per cent 4-year CAGR). The non-cigarette business is expected to grow 5 per cent YoY and the FMCG category will grow at 12 per cent YoY growth. “We expect cigarette EBIT to grow by 6 per cent YoY. We model FMCG EBIT margin at 8 per cent vs 6.6 per cent YoY. EBITDA to grow by 7 per cent YoY,” said HDFC Securities’ Varun Lohchab.
Anushi Vakharia, Research Analyst, StoxBox, said, “We expect ITC Ltd to report volume growth in the mid-single-digit range for its cigarette business on the back of the segment reporting market share gains and innovation. In the previous quarter, the business reported a robust performance in its FMCG business led by the business ramping up its rural distribution reach. However, considering the overall weak monsoon evidenced in August, we expect this growth rate to be subdued. Meanwhile, we expect GP and EBITDA margins to expand in the 100-150bps range with key raw material prices falling off from their earlier levels and higher focus on premiumization.”
Further, Kunal Vora, Director, Head of India Equity Research, BNP Paribas, said that the cigarette business at ITC is expected to record net revenue growth at c7 per cent YoY, backed by volume growth of c5 per cent YoY (base volume growth of 21 per cent YoY) and largely stable prices. EBITDA margin, meanwhile, is expected to remain stable on-year basis, backed by strong sales performance of the cigarettes and hotels businesses and easing raw-material prices for its FMCG business. “We estimate revenue growth of 12 per cent YoY for the FMCG division and 20 per cent YoY for hotels. While the agri and paperboard businesses should record 20 per cent/ 5 per cent YoY revenue growth.” said Kunal Vora. BNP Paribas expects ITC to post Q2 sales at Rs 17,573.00 crore and PAT at Rs 4911.90 crore.
Overall FMCG performance during Q2
Meanwhile, HDFC Securities said that its FMCG coverage universe is expected to deliver 6/10 per cent growth YoY/four-year CAGR in revenue in Q2FY24. “The FMCG sector is expected to witness a gradual recovery in demand, led by (1) moderating inflation; (2) a hike in MSP; (3) easing liquidity pressures; (4) government spending; and (5) healthy sowing,” said HDFC Securities’ Varun Lohchab. Further, weak discretionary demand and delayed festive season are expected to impact the summer portfolio of skin care, hair care, and other personal care categories.
Per a report by BNP Paribas, FMCG industry revenue growth will slide again in Q2FY24 as price-hike benefits continue to fade with no meaningful improvement in sales volume. “We expect firms to partially reinvest gross margin gains, arising from lower commodity prices YoY, in advertising and promotions (A&P). In Q2FY24, we expect growth of c5 per cent YoY (8 per cent in Q1) in revenue and 12 per cent (14 per cent in Q1) in EBITDA for our FMCG coverage,” said Kunal Vora.
Key monitorables
According to brokerage firms, key monitorables from ITC Q2 earnings will be announcement on cigarette volume and mix improvement, FMCG business EBIT margin, and outlook on paper cycle and agri and hotel businesses. “A key development to remain watchful is the company’s outlook on its agribusiness which is under pressure and hampering the overall growth of the company after the government’s decision to place restrictions on wheat and rice exports,” said Anushi Vakharia.