ITC net remains flat on low cigarette sales

Cigarette volumes and sluggish demand in the FMCG industry impact numbers

Cigarette-to-hotel major ITC’s October-December earnings missed analysts’ expectations, with its net profit rising marginally. The net rose by only 0.7 per cent to Rs 2,652.82 crore, against Rs 2,635 crore in the same quarter of the year-ago period.

ITC attributed the performance to severe pressure on cigarette volumes, lack of trading opportunities in agri-commodities and a weak demand prevailing in the fast-moving consumer goods (FMCG) industry.

Net revenue for the quarter registered a growth of 3.4 per cent to Rs 9,102.66 crore from Rs 8,800.22 crore in the same period last year. Revenue from cigarettes, which account for roughly 45 per cent of revenue, dropped from Rs 4,141.94 crore to Rs 4,379.86 crore.

Analysts had estimated a moderate drop of five to six per cent in cigarette volumes during the quarter. “But, the drop was probably eight to nine per cent,” an analyst said.

“Over the past three and a half years, the incidence of excise duty and value-added tax on cigarettes, at a per unit level, has gone up cumulatively by 98 per cent and 124 per cent, respectively. This is exerting severe pressure on legal industry volumes, even as illegal trade grows unabated. It is pertinent to note that steel increases in excise duty on cigarettes in recent years have resulted in widening the differential in excise duty rates between cigarettes and other tobacco products from 29 times in 2005-06 to over 53 times currently,” the company said.

Cigarettes come under the FMCG business. The FMGC-others segment, which includes branded packaged foods businesses, apparel, education and stationery, personal care products, safety matches and agarbattis, however, recorded a revenue growth of 7.1 per cent to Rs 2,477.65 crore against last year. Revenue from the hotels segment, too, were up 4.5 per cent to Rs 345.27 crore against last year, led by a growth in occupancy and food and beverage business.

Revenue from the agri business, however, suffered. Revenue was down from Rs 1,597.86 crore to Rs 1,480.99 during the October to December quarter. Profits, too, dropped marginally from Rs 238.84 crore to Rs 231.44 crore.

“Segment revenue and profits for the quarter were impacted by lack of export opportunities in wheat, soya and coffee besides subdued demand for Indian leaf tobacco exports,” ITC said. The company’s stock on Friday ended 0.69 per cent up to Rs 308.65 on BSE.