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ITC slips 3%; cigarette volumes may see biggest fall in Q1

Acccording to a CNBC-TV18 poll, cigarette volumes may decline of 15-18 percent. Volume-generating brands like Gold Flake may see contraction of 20 percent and Classic brand may see volumes decline of 10 percent due to price hikes.

July 29, 2015 / 06:21 PM IST
 
 
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Moneycontrol Bureau

Shares of ITC slipped 3 percent intraday on Wednesday as investors turn cautious on its cigarette volume growth. The FMCG major company is expected to announce its April-June quarter on July 30 and analysts polled by CNBC-TV18 feel there is nothing exciting about it. Acccording to a CNBC-TV18 poll, cigarette volumes may decline of 15-18 percent. Volume-generating brands like Gold Flake may see contraction of 20 percent and Classic brand may see volumes decline of 10 percent due to price hikes.

Cigarette volumes are expected to see perhaps the biggest fall in many quarters as best selling brands like Gold Flake and Classic may see considerable volume declines during the quarter.

This may lead to weakness in earnings as 40 percent of revenues and 85 percent of profit come from cigarettes. In the past, cigarette volumes declined 13 percent in Q4FY15, 14 percent in Q3, 5 percent in Q2 and 2.5 percent in Q1.

The full impact of price hikes on cigarette volumes will be seen in June quarter. ITC hiked cigarette prices on blended basis amount to around 30 percent in July 2014 and March 2015. Analysts see overall price hike translation of 29-32 percent on cigarettes Y-o-Y. March hike was partly to compensate for excise hike of 18 percent proposed in Budget 2015-16.

The stock price declined 12.5 percent in last one year, underperforming Nifty (up 9.4 percent). In fact, it has corrected around 5 percent since its Q4 earnings which were disappointing.Several brokerages had revised their price targets downwards after disappointing Q4FY15 results. A lot of these brokerages were neutral to negative with price targets set between Rs 310-390 apiece. This is after factoring in an even worse decline in cigarette volumes for Q1FY16.

Consolidated net profit is seen rising 6 percent year-on-year to Rs 2,320 crore and revenue is likely to increase 0.6 percent to Rs 9,300 crore during the quarter. Operating profit (earnings before interest, tax, depreciation and amortisation) may rise 3 percent to Rs 3,381 crore and margin may expand 100 basis points to 36.4 percent.

At 12:15 hrs ITC was quoting at Rs 302.15, down Rs 9.10, or 2.92 percent on the BSE.Follow @NasrinzStory

first published: Jul 29, 2015 12:50 pm

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