ITC Q1 Results Preview: Cigarette volumes may see up to 8% growth; all eyes on hotel business demerger update

ITC Q1 Results preview: ITC, the diversified conglomerate, is expected to report a 5 per cent year-on-year (YoY) decline in its standalone revenue at Rs 16,443 crore for the quarter ended June 2023 (Q1FY24), according to Zee Business Research. The company had posted revenue of Rs 17,290 crore in the year-ago period.

The company will announce its results today (August 14).

Its EBITDA, or earnings before interest, taxes, depreciation, and amortisation, is expected to rise 9 per cent YoY to Rs 6,158 crore against Rs 5,648 crore logged in the year-ago period. Ebitda margins are seen at 37 per cent against 33 per cent registered in the year-ago period. Net profit, or profit after tax (PAT), is expected to rise 12 per cent YoY to Rs 4,681 crore against Rs 4,169 crore logged in the year-ago period.

ITC Q1 Results Preview: Segment-wise

ITC's agri business income is likely to see a significant decline due to its high base, while the cigarette business is expected to see 10 per cent growth. Cigarette volumes are estimated to see 7-8 per cent growth. An increase in tobacco prices is expected to impact the margins of the cigarette business.

The FMCG segment is expected to see 12–13 per cent growth, while its hotel business is estimated to see growth of 12–13 per cent. Further, paperboards, paper, and packaging verticals are expected to see flat growth.

These aside, management commentary on hotel business demerger and demand are key monitorables.

ITC's 112th AGM

The company said the FMCG business has immense potential for growth, with its brands commanding an annual consumer spend of Rs 29,000 crore. Speaking at the 112th AGM of the company, ITC chairman Sanjiv Puri told shareholders in his address that the FMCG brands are being exported to several countries and the business vertical has immense growth potential due to the rising per capita income of the people. "The ITC Next strategy for the FMCG business is to build a future-ready portfolio. With more than 25 brands at the moment, the annual consumer spend is around Rs 29,000 crore", Puri said. READ MORE

Puri added that India has emerged as a "beacon of growth" at a time when the world is grappling with serious issues affecting growth across all major economies. Puri said the country is buoyed by optimism and deeply engaged in realising that promise, striding on the pathways of clearly enunciated goals and policies.

ITC's Hotel business demerger 

Last month, ITC announced that it would spin off its hotel business, separating it from its cigarette and food units.

The cigarettes-to-hotels conglomerate would hold a 40 per cent stake in the newly formed entity, to be named ITC Hotels Ltd., with the remaining shares held by shareholders of ITC if the demerger gets final approval from the board on August 14. Details of the proposed reorganisation, including the scheme of arrangements, will be presented for the board's approval at the same meeting.

"Hotels business has matured over the years and is well poised to chart its own growth path as a separate entity in the fast-growing hospitality industry with a sharper focus on the business and an optimal capital structure," ITC said in a statement.

Analysts' views

Domestic brokerage Prabhudas Lilladher, in its post-demerger announcement note, said it believes strong growth momentum in the cigarette business and steady margin expansion in FMCG are positives. "ITC trades at 25.3x FY25 EPS with an ROE/ROCE of 30%+/35%+ and nearly over 80 per cent dividend payout. We increase our SOTP-based target price to Rs 478 (Rs 455 earlier, cigarette multiples increased to 22x). Retain ‘Accumulate’."

On hotel demerger news, Prashanth Tapse, Sr VP Research Analyst at Mehta Equities, said, "ITC's hotel business demerger approval may unlock shareholder value with a direct stake in the new entity, but it disappoints some street expectations." 

The proposed hospitality-focused entity aims for growth and value creation in the Indian hospitality industry, benefiting both ITC and the new entity through institutional synergies. Clarity on the scheme of arrangements is awaited until the board meeting on August 14, 2023. 

"The stock faces technical pressure, with a close below Rs 468 potentially bringing more challenges, while long-term support near Rs 450 levels warrants caution and observation for potential volatility," Tapse added.