Lockdown hurts ITC’s cigarette business


Kotak Institutional Equities expects a 25.5 % drop in net sales and a 37.7 % drop in adjusted PAT on a year-on-year (YoY) basis ITC‘s Q1. Kotak said lockdown impacted sales for the first forty days of the quarter. But the volumes bounced back rapidly to near-standard levels thereafter. About 85 % of ITC‘s FMCG portfolio comprises necessary categories that reported healthy increase offsetting decline in the rest of the portfolio.

“We model about 53 % YoY turn down in cigarette net sales, led by a 55 % decline in volumes and 2 % price/mix (price raise of about 8 % partly offset by down-trading). We forecast 50 % YoY decline in cigarette EBIT,” Kotak said.

“We model 3 % growth and 80 % YoY turn down in FMCG and hotels segment, in that order, due to COVID-19. We expect margin development in FMCG (up 80 bps YoY to 3.3 % PBIT margin) and operating loss in hotel segments,” Kotak said.

Brokerage firm Motilal Oswal Financial Services expects a 27.5 % YoY drop in the company’s net sales for the June quarter of FY21. Brokerage firm ICICI Direct expects ITC to post a 25.6 % turn down in sales given the company lost 40-45 days of cigarette sales.

ICICI expects a 50 % dip in cigarette volumes through the quarter. The company had taken about a 10 % price scramble after excise duty raise in Budget 2020. ICICI expects a 30 % turn down in agri and paper business revenues with supply chain lasting disrupted in April and May.

Hotels business was the most terrible hit with occupancy reducing to single digits. ICICI expects an 80 % decline in sales in this segment in a near washout situation. The brokerage highlights that FMCG would have been silver lining given major categories like atta, biscuits, packaged foods, soaps and sanitisers are piece of the essentials and started manufacturing within ten to fifteen days of lockdown. Demand for packaged foods improved significantly, given greater than before in-home consumption.


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