No light from ITC June quarter results for investors

Cigarette-to-soap maker, ITC’s June quarter results were not particularly encouraging. The cigarette business, which is ITC’s mainstay, disappointed

Varun Lohchab, an analyst at Jefferies India Pvt. Ltd points out that “ITC’s Q1FY20 missed slightly operationally as cigarette volumes grew 3% year-on-year (versus our 4% expectation)." Note that cigarettes form a big chunk of ITC’s profit contribution. For the June quarter, cigarettes accounted for as much as 86% of the company’s overall earnings before interest and tax, or Ebit. The cigarette business’ Ebit increased by 8% year-on-year during April-June. To put it in perspective, the growth was 1% below Jefferies’ estimates.

ITC’s fast-moving consumer goods (FMCG) business saw revenue growth of 6% which is not extraordinary and is largely in line with broader consumption trends, given the slowdown in the economy. Revenue growth from other businesses--hotels, farm, and paperboards, paper and packaging--was in double digits, which is nothing to complain about. However, the contribution from these segments to profits is relatively low at the moment. As such then, these segments don’t move the needle dramatically for ITC.

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