Initial preview notes suggest the company may report a 8-9 per cent growth in cigarette volumes for the December quarter, partly on a weak base. Sales is seen growing 5-6 per cent while profit growth is expected to be flattish-to-single digits.
Analysts, however, are bullish on this ‘under-appreciated’ stock and see 25 per cent potential upside in
in the next 12 months.
Kotak Institutional Equities is estimating a 9 per cent YoY growth in cigarette volumes on an 8 per cent YoY decline in base quarter. It sees 10.5 per cent YoY growth in cigarette sales aided by 1.5 per cent price mix. Cigarette EBIT is seen growing 11.4 per cent YoY.
ITC has reported cigarette volume growth of 9.5 per cent in the September quarter.
“In the FMCG segment, we estimate 12 per cent YoY revenue growth aided by Sunrise acquisition (up 7 per cent YoY organic revenue growth ex-Sunrise). It implies two-year organic revenue CAGR of 7 per cent. We model nearly 40 bps sequential decline in FMCG EBIT margin to 6.3 per cent largely due to gross margin pressure. We expect hotel revenues at Rs 420 crore with EBIT breakeven during the quarter,” the brokerage said.
Overall, Kotak is expecting standalone profit for the FMCG major to increase 4.5 per cent YoY to Rs 3,854.40 crore from Rs 3,687.90 crore in the year ago quarter. Revenues are seen growing 6.6 per cent to Rs 12,758.90 crore from Rs 11,969 crore in the same quarter last year. Ebitda margin is seen expanding to 38.1 per cent compared with 36.3 per cent in September quarter and 36 per cent in the year-ago quarter.
Edelweiss sees revenue and Ebitda for the company to grow 5.9 per cent YoY and 2.8% per cent YoY, respectively. It sees PAT falling 0.7 per cent YoY.
“We expect cigarette volume to rise 8% YoY on base of negative 5 per cent. We expect FMCG business to report 5 per cent YoY on base of 7.5 per cent. We expect the hotels business to grow 30 per cent YoY on a base of negative 57.4 per cent growth. Agri business may remain flat on a base of 18.5 per cent growth. Paperboard business should see 20 per cent YoY growth on a negative 5 per cent base. Overall, we expect EBITDA margins to dip,” Edelweiss said.
This brokerage is expecting PAT at Rs 3,662.70 crore and sales of Rs 12,676 crore.
A median of 34 analyst targets suggest an upside potential of 25 per cent in ITC stock. Retail investors held just over 12 per cent stake in the cigarette maker as of September 30.
In its year-ahead outlook, JM Financial said it finds ITC’s valuation of just 16-17 times EPS to be undemanding.
“ITC’s cigarette business’ financials are yet to reflect the total benefit from the unlocking of the economy. We expect cigarette volumes here onwards to be very close to pre-pandemic quarterly run-rate and start to grow on that base sooner or later, assuming there is no big hit in the upcoming Union Budget in February. This could help drive double-digit EBIT growth in the cigarettes business finally,” it said.
“Separately, ITC’s FMCG segment is possibly one of the most under-appreciated businesses in recent times, in our view. We suspect the market may not have taken a holistic look yet; our understanding of Indian consumer categories tells us that ITC FMCG today addresses market opportunities that are Rs 2.1 lakh crore in size in aggregate.
Even if one excludes a couple of nascent dairy products from the portfolio, the addressable opportunity for ITC is still $22 billion – larger than even HUL’s ‘size of markets’ and more than 3 times that of Nestle India’s. The same would need to be captured into valuation soon,” it added.
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.
