ITC to feel the lockdown pain in cigarettes and hotels business - FMCG may be the silver lining in first quarter earnings

BCCL
  • According to various analysts reports, ITC is projected to see a profit dip of nearly 35% but will see healthy growth in its FMCG segment.
  • Lockdown hurts ITC’s cigarette business - ITC owns about 80% market share in the category, 25% of the profit came from cigarettes in the past quarter.
  • Analysts at Sharekhan projected a revenue dip of 90%, saying that the hotel business is likely to be the most adversely impacted by the Covid-19 outbreak.
After Britannia, and HUL, FMCG major ITC is all set to declare its first-quarter earnings for 2020-21, on Friday, July 24. With its cigarette business taking a big knock and hotels seeing a complete washout due to the pandemic, the hope lies with the FMCG business to save the quarter for ITC.

According to various analysts reports, ITC is projected to see a profit dip of nearly 35% but will see healthy growth in its fast-moving consumer goods segment.

BrokerageNet Profit (expected)
Emkay-38%
Sharekhan-33.70%

ITC’s business is spread over different segments from cigarettes and hotels to paperboards, packaging, and agriculture exports. The coronavirus induced lockdown affected almost every non-essential business around the country and, ITC’s 75% of the business wasn’t immune to it either.
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BI India

Bleak cigarettes demand

ITC is a leader with about 80% market share in the cigarettes category, ranging from Gold Flake to Classic - however, the demand has been bleak in the past few months. Cigarette sales were prohibited for almost two months during the lockdown, and this will have a major impact on its earnings. According to Sharekhan, the cigarette sales volume is expected to decline by 50% in Q1.

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Along with that, since cigarettes are not listed as an essential commodity, ITC had to hold back production, which in turn affected the availability and most shops ran out of stock.Even as lockdown began easing in parts of the country, supply chain disruption was enough to add to the woes of the cigarette maker.

FMCG segment to rescue

The hope lies with the FMCG sector to provide a silver lining in the quarter. Analysts believe that the rise in the consumption of packaged food during this lockdown may support ITC quarterly growth.

Axis Securities believes that ITC has mastered creating FMCG brands like Sunfeast biscuits, Bingo chips, Yippee noodles, and Aashirvaad atta and is rapidly gaining share in the segment.
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According to the Nirmal Bang report, increasing consumer traction for ‘Bingo!’ and ‘Tedhe Medhe’ continued to drive growth in this sub-segment. And, in fact, ITC’s ‘Tedhe Medhe’ is the most widely distributed snack brand in the country.

Edelweiss Securities expects the FMCG business to report 10% year-on-year revenue growth. And on FMCG fueled hope the share price has ridden the wave of coronavirus. It has gained nearly 17% since the beginning of the quarter.

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Hotels segment— a complete washout

Travel and hospitality industry has borne the biggest brunt of this pandemic, and ITC will feel the pain too. Analysts at Sharekhan projected a revenue dip of 90%, saying that the hotel business is likely to be the most adversely impacted by the Covid-19 outbreak.

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