The Indian conglomerate ITC Limited is set to release its financial results for the second quarter of FY25 on October 24, 2024. With its vast presence spanning cigarettes, hotels, FMCG, agribusiness, and paperboards, ITC’s performance is closely watched.
In this quarter, analysts expect ITC to post moderate revenue growth despite challenges in several segments, driven by solid performance in FMCG, hotels, and agribusiness.
Revenue Forecast: 7% Growth Led by FMCG, Hotels, and Agri Segments
For the quarter ending in September 2024, ITC is anticipated to report 7% YoY revenue growth, increasing from ₹16,394 crore to ₹17,540 crore. This performance is largely attributed to strong gains in the non-cigarette businesses, particularly in FMCG, hotels, and agribusiness segments.
| Segment | Estimated Growth (YoY) | Key Drivers |
|---|---|---|
| Non-Cigarette FMCG | 6.5% | Strong atta, biscuit, and snacks portfolio |
| Hotels | 10% | Recovery in demand post-pandemic, higher occupancy rates |
| Agribusiness | 15% | Robust export demand and stable domestic market |
| Paperboards | -4% | Impacted by tough operating conditions, decline in demand |
The non-cigarette FMCG segment, including staple products like atta, biscuits, and snacks, is expected to grow by 6.5% YoY, with EBIT margins rising slightly to 8.4%. Meanwhile, the hotels business is forecasted to achieve a 10% YoY growth as occupancy rates improve, leading to a moderate margin expansion.
ITC Cigarette Business: Steady Growth with Margins Under Pressure
The cigarette division, ITC’s flagship segment, continues to hold steady with an estimated 3% volume growth YoY, translating into a 7% increase in cigarette sales. However, rising costs of key inputs such as leaf tobacco have exerted downward pressure on margins.
ITC has managed to mitigate some of these cost pressures through a better product mix and calibrated pricing strategies. As a result, the cigarette business is expected to post an EBIT margin of 115 basis points lower YoY, but still stable.
| Cigarette Business | YoY Volume Growth | Revenue Growth | Margin Impact |
|---|---|---|---|
| Cigarette Volume Growth | 3% | 7% | Margins down by 115 bps due to inflation in tobacco prices |
Operating Margins: Expected Decline in EBITDA Margins
Despite the expected revenue growth, ITC’s EBITDA margin will likely narrow to 35.8%, a decline of 110 basis points YoY. This is primarily driven by increased costs, including higher employee expenses and elevated advertisement spending in preparation for the upcoming festive season.
| EBITDA Performance | Q2FY25 Estimate | YoY Comparison |
|---|---|---|
| EBITDA (₹ Crore) | 6,283 | +4% |
| EBITDA Margin (%) | 35.8% | -110 bps |
Key Factors Impacting Margins:
- Unseasonal monsoon rains disrupted supply chains, limiting growth in some regions.
- Higher advertisement and promotional expenses ahead of Q3’s festive season.
- Elevated employee costs across sectors.
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Other Segments: Mixed Performance
- Hotels: As the hotel industry rebounds from the pandemic, ITC’s hotels division is expected to post a 10% YoY growth in revenue. Margins are also likely to improve, with EBIT margins forecast to increase by 60 basis points to 20%.
- Agribusiness: ITC’s agribusiness is another star performer this quarter, with an expected 15% YoY revenue growth, driven by strong demand for agricultural exports and a steady domestic market.
- Paperboards: The paperboards segment is forecasted to decline by 4% YoY due to challenging market conditions. Demand softness and operational challenges have squeezed margins, leading to an anticipated EBIT margin of 13.5%.
ITC Stock Price Performance
ITC’s stock price has experienced volatility in recent months. The stock has declined by 6% in the past month and dipped 2% over the last quarter. However, ITC shares have delivered 12% returns over a longer six-month period, demonstrating resilience in the face of near-term pressures.
| ITC Stock Performance | Timeframe | Change |
|---|---|---|
| 1 Month | -6% | |
| 3 Months | -2% | |
| 6 Months | +12% | |
| 1 Year | +10% |
Analysts remain cautiously optimistic about ITC’s ability to sustain growth. Despite the recent dip, ITC’s diversified business model, consistent cigarette revenues, and expanding FMCG footprint position it well for future growth.
Disclaimer
The data and insights provided in this article are based on estimates and publicly available information at the time of writing. Readers are advised to conduct their own research or consult financial advisors for personalized investment advice.
