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Informist, Friday, Oct. 24, 2025

 

By Avishek Rakshit

 

KOLKATA – ITC Ltd. is expected to feel the pinch of the time gap between the announcement of a cut in the goods and services tax in August and its actual implementation in September as its sales channels would have likely destocked products leading to a fall in sales volumes. But the company's dependence on cigarettes as its profit driver--which has been out of the ambit of GST cuts--is expected to prove the saviour for the company's September quarter performance.

 

At a time when leading consumer goods companies are projected to post a decline in their profits, the country's largest cigarettes company is expected to report a 2.2% on-year increase in its net profit for the September quarter to nearly INR 51 billion. The company's revenue, however, is expected to decline 1.8% on year to INR 195 billion, according to the average of estimates from 12 brokerages. On a sequential basis, the net profit is likely to increase 3.6% and the revenue is expected to fall 7.4%. The cigarettes-to-soaps major will declare its results for the September quarter on Oct. 30.

 

The highest estimate for the company's net profit is over INR 55 billion from YES Securities (India) Ltd. and the lowest of nearly INR 48 billion is from Systematix Shares and Stocks (India) Ltd. The highest estimate for revenue is by Motilal Oswal Financial Services Ltd. at nearly INR 217 billion and the lowest is by Nirmal Bang Equities Pvt. Ltd. at INR 177 billion.

 

Most of the brokerages expect ITC to maintain a 5-6% volume growth in cigarettes amid a relatively improving demand environment. ITC as well as the brokerages have been stressing on price stability in cigarettes arising from stable taxes as the key demand driver for cigarettes. This product category, which usually accounts for over 74% of ITC's annual profits and around 46% of its sales, is the most important business vertical.

 

Against expectation of an increase in the effective taxes on cigarettes, even as the GST on cigarettes increased in the latest changes to GST rates, there was no net increase in taxes on cigarettes, according to the government. Besides, the rollout of the higher tax slab on cigarettes would be done in the March quarter which helped ITC drive cigarette sales in an otherwise uncertain business environment.

 

While the trade channels of all consumer goods companies destocked older inventory aggressively and consumers withheld purchases in the pre-festival period anticipating tax cuts that would lower prices, online sales channels resorted to deep discounting to clear older stocks. This created a serious imbalance in the trade channels of all consumer goods companies including ITC which has a strong line-up of consumer products like noodles, foods, personal care products and other items.

 

ITC maintained that the rollout of new products such as Gold Flake Social and brand extensions of mother brands such as Classic increased focus on premiumisation which, along with deeper penetration, have been driving the growth in cigarette sales. The September quarter was no exception to this trend that has been going on for over a year now.

 

The volume-led growth in the cigarette portfolio, which will ensure ITC's bottom line grows, is also expected to be helped by a 1% increase in prices through premiumisation which will help pull revenues up further, Emkay Global Financial Services Ltd. said.

 

The non-cigarette consumer goods business is also expected to fare better than its peers despite the destocking in the September quarter. Kotak Securities Ltd., which factored in a hit of 300-350 basis points on ITC's September quarter revenue growth, estimates a 4% on-year revenue growth from this business vertical which accounts for 20% of the top line and 6% of the bottom line. Around 75% of ITC's non-cigarette portfolio saw channel destocking last month.

 

While ITC benefitted immensely from exports and trading of commodities and branded commodities in the year-ago quarter, moderating prices of wheat, rice, and other export products in the September quarter could lead to a decline in revenue and profit growth in its agricultural business that accounts for 34% of its revenues and 6% of profits. Nuvama Wealth Management Ltd. projected ITC will report an 8% on-year decline in the top line from the agricultural business due to a high base and the profit from this vertical will decline by 47% on year.

 

The growth of the paperboards business is expected to remain subdued at 5% on year due to tough operating conditions such as subdued domestic demand, weak export markets, weaker net realisations, and cheap Chinese supplies flooding the markets, Kotak Securities said.

 

ITC is expected to report an earnings before interest, tax, depreciation, and amortisation of over INR 63 billion in the September quarter, according to the average of 11 estimates. YES Securities' estimate for EBITDA is the highest at INR 69 billion and Systematix's estimate of around INR 59 billion is the lowest.

 

High cost inventory of leaf tobacco and operating deleverage in the paperboards business may result in ITC's overall gross margin contracting by 179 basis points on year to 49.8% while the EBITDA margin may contract 33 basis points on year to 32.5%, Nuvama said.

 

Friday, shares of ITC ended at INR 416.80 on the National Stock Exchange, down 0.2% from the previous close. Shares of ITC remained flat since the company announced its June quarter earnings in August.

 

Of the 21 research reports on the company available with Informist, 19 have a 'buy' rating on the stock at an average target price of INR 506. One brokerage each have a 'hold' and a 'buy' rating on the stock.

 

The following are the Jul-Sept earnings estimates for ITC from 12 brokerages in descending order of the estimate of net profit in INR million:

 

Broker Name	Net Sales (in INR million)	Net Profit (in INR million)	EBITDA (in INR million)
YES Securities (India) Ltd	214,747	55,173	69,091
Motilal Oswal Financial Services Ltd	216,873	52,731	69,009
Prabhudas Lilladher Pvt Ltd	190,221	51,974	64,104
Emkay Global Financial Services Ltd	187,562	51,879	64,055
Elara Securities (India) Pvt Ltd	197,596	51,140	63,502
Kotak Securities Ltd	199,037	50,923	62,939
Nomura Equity Research	189,061	50,850	62,266
Sharekhan Ltd	186,370	50,750
JM Financial Institutional Securities Pvt Ltd	207,583	50,508	62,439
Nuvama Wealth Management Ltd	189,579	48,610	61,613
Nirmal Bang Equities Pvt Ltd	177,038	48,398	60,193
Systematix Shares and Stocks (India) Ltd	185,773	47,681	58,804
Average	195,120	50,885	63,456

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Akul Nishant Akhoury

 

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