ITC Preview: Q1 net profit seen rising 9% YoY, cigarette volumes down

Cigarette-to-soap maker ITC is likely to report a year-on-year rise of 8.96 percent in its net profit for the June quarter to Rs 2,790 crore, according to an average of 13 brokerages' estimates compiled by Reuters.

The rise in the company's bottom line is expected to be driven by growth in the its non-cigarette businesses on the back of a favourable base, and improved realisation from cigarettes.

ITC is scheduled to detail its earnings for the June quarter on July 26.

Underpinned by growth in the non-cigarette segment and hikes in the prices of cigarettes, the Kolkata-based company's net sales for the quarter are seen coming in at Rs 9,876 crore, 6 percent higher on year.

Its earnings before interest, tax, depreciation, and amortisation (EBITDA) is expected to fall 4.11 percent YoY to Rs 4,049 crore.

Most brokerages have stated that the company is likely to report a year-on-year fall in sales of cigarettes. Cigarette sale volumes in the April-June quarter are likely to decline 1-2 percent.

Brokerage ICICIDirect has taken a contrarian view and estimated a rise of 2 percent in cigarette sale volumes, mainly due to last year's favorable base.

However, no hike in the Goods and Services Tax (GST) on cigarettes after the initial one in 2017 is seen as positive for the company.

ITC's cigarette business is considered crucial for its performance as it accounted for nearly 52 percent of its top line and 79 percent of its profit before tax (PBT) in FY18.

"The management has shifted its focus from cigarettes business to grow its fast moving consumer goods business and its target is to become the largest player in the segment," KR Choksey Research said in a report.

ITC is a diversified conglomerate that also has business interests in fast moving consumer goods, paper, hotels, and agriculture. According to analysts, most of these businesses are expected to report healthy growth.