ITC net rises 10.5% on tobacco biz growth

It managed higher profitability from its cigarette business, while loss from other FMCG segment narrowed down

Beating Street estimates, ITC posted a 10.5 per cent increase in its net profit at Rs 2,500 crore for the quarter ended September 30,  on the back of higher profitability from its cigarette business and a narrowed-down from the non-cigarettes fast-moving consumer goods (FMCG) business.
 
In the corresponding quarter of FY16, the company had a net profit of Rs 2,262.5 crore on a standalone basis. For the period under review, ITC’s revenue from operations surged 7.8 per cent to Rs 13,491 crore against an earlier earning of Rs 12,512 crore.
 
Analysts had expected a rise of 5-7 per cent in top line; while the bottom line was thought to get impacted due to sluggish cigarette sales. Revenue from cigarettes rose 7.1 per cent to Rs 8,528 crore, while the gross profit increased 8.3 per cent to Rs 3,217 crore.
 
The company said the operating environment for the cigarette sector  became challenging in the wake of the 10 per cent rise in excise duty announced in the Budget 2016 and introduction of graphic health warnings on packages.  “ITC’s strategy of calibrated price hike has expanded margins by 44 basis points, with decent volumes,” said Abneesh Roy, senior vice-president (institutional equities) at Edelweiss Securities: “With per capita consumption 1/18th China’s, the cigarette opportunity in India remains attractive.”
 
The net revenue from ‘others FMCG’, comprises dairy & beverages, edibles and ready-to-eat meals rose 13.3 per cent to Rs 2,672 per cent from Rs 2,358 crore amid weak demand. The company posted a double-digit growth in this segment after four quarters of single-digit growth.
 
The firm credited the improvement in sales to enhanced scale and enriched mix offsetting the impact of a significant increase in input cost, continuing investment in brand building, and consumer & trade promotion activities. Roy, however, credited the growth to new product launches and a favourable base in noodles.
 
In the quarter under review, the dairy & beverages vertical scaled up  sales of B Natural range of juices and also launched two blends of gourmet coffee under the Sunbean brand, currently sold through select ITC Hotels.
 
It also expanded the footprint of Fabelle Chocolate Boutiques to ITC Sonar, Kolkata; ITC Maurya, New Delhi; and ITC Grand Chola, Chennai, in addition to the one at ITC Gardenia, Bengaluru, launched earlier. 
 
“Plans are on the anvil to extend the luxury chocolate boutiques to select ITC Hotels in the ensuing months,” ITC stated. 
 
The business continued to be under stress in its profitability as the company posted a net loss of Rs 3.26 crore against Rs 11.10 crore loss in the year-ago period.
 
The hotels business has turned around with a revenue gain of 2.5 per cent at Rs 297.34 crore in the quarter under review compared to the earning of Rs 290.05 crore in the July-September period of 2015, and profit of Rs 65 lakh against Rs 5.54 crore loss.
 
In the agri-business vertical, which provides strategic sourcing support to the company’s cigarette business and leverages its rural linkages to source raw materials for the foods and packaged goods business, the firm posted a flattish top line and bottom line at 1.9 per cent and 1.03 per cent, respectively.
 
ITC stock closed at Rs 238.90 a share on the BSE on Wednesday, up 0.15 per cent from the previous close.