ITC Q4 preview: Will demonetisation, price hike in cigerattes impact earnings?

Share price of ITC will be in focus on Friday ahead of its fourth quarter ended March 31, 2017, results. 

At 1022 hours, ITC was trading at Rs 304.45 per share higher by 1.58% on BSE. 

Many analysts expects the last quarter of FY17 to feel the impact of price hike made in cigeratte during January – March 2017, period in both top-line (revenue) and bottom-line (net profit). 

ITC is majorly dependent on cigeratte business and in the month of February, the company made 13% hike in its premium category (Classic). 

Following which, Motilal Oswal said, ITC's cigeratte volume will decline by 4% on year-on-year (YoY) basis. 

In Q3FY17, cigerattes business contributed just 2.24% in ITC's total revenue at Rs 8,287.97 crore compared to Rs 8,106.31 crore a year ago same period. 

Similarly, Edelweiss Financial Services said, “On a base of flattish volumes in cigarette we expect cigarette volumes to decline by ~1-2% YoY in Q4FY17 in cigarettes (Q3FY17 saw flattish volume growth on a base of 4% YoY decline in volumes).”

Motilal expects cigarette EBIT (earnings before interest and tax) to grow 1.9% YoY. We have factored in EBITDA decline of 0.1% YoY to Rs 3,603 crore for ITC this Q4. 

Thus a decline in cigerattes volume would mean net sales will be impacted. Motilal sees net sales of Rs 9,879.8 crore, growing by 1.26% yoy and 6.82% qoq basis. 

Meantime other FMCG business of ITC is expected to witness single-digit growth in Q4. Edelweiss said, “FMCG business is expected to see 10% YoY on a base of 5.4% YoY. Subdued demand in hotels and papers is expected to continue further impact by demonetisation.”

While KR Choksey said, “It's other business like paper board, hotels and agri has been impacted by demonetisation and will see delay in recovering We expect EBIDTA & PAT margins to be around 26.8% and 19.2% on yoy basis.”

Considering above, ITC's net profit is seen at Rs 2,578.1 crore during Q4FY17, increasing by 8.37% yoy but will decline by 2.59% on qoq basis. 

ITC in Q3FY17 reported 5.7% yoy  jump in net profit at Rs 2,646.73 crore and while total income from operations grew by 4.7% yoy at Rs 13,569.97 crore.