ITC net up 21% but fails to meet Street expectation

Disappointment in both tobacco and non-tobacco segments

Diversified conglomerate ITC has reported its second quarter net profit at Rs 2,230 crore as against Rs 1,836 crore in the same period last year, up 21.5 per cent.

Gross sales grew almost nine per cent, to Rs 7,776 crore. Muted cigarette sales, up 10 per cent over a year before, led to the revenue growth being only in single digit, suggested analysts. Cigarette sales for the quarter rose to Rs 3,724 crore as against Rs 3,385 crore earlier. Profit from the cigarette business, primary vehicle of profit for ITC, was Rs 2,570 crore as against Rs 2,080 crore in the year-ago period, a jump of 23 per cent. However, “but for the move to write off Rs 157.9 crore, profits from the segment would have been (only) around 15 per cent (more),” said an analyst at Sharekhan. Analysts indicated the cigarette volume fell about five per cent against an expectation of two per cent.

ITC’S Q2 AT A GLANCE

• Second quarter net profit at Rs 2,230 crore, against Rs 1,836 crore in the same period last year
• Gross sales grew almost nine per cent, to Rs 7,776 crore
• Profit from the cigarette business at Rs 2,570 crore, against Rs 2,080 crore in the year-ago period
• The non-cigarette FMCG business still in the red. The segment made a loss of Rs 12.7 crore, compared to Rs 30.3 crore a year before

“ITC surprised negatively on the volume growth, with a five per cent year-on-year decline, which resulted in cigarette sales growth of only 10 per cent and total sales growth of 8.5 per cent, y-o-y,” said Rakesh Tarway, head of equity strategy, Motilal Oswal Securities.

The non-cigarette fast moving consumer goods business was in the red for this quarter as well. The segment made a loss of Rs 12.7 crore, compared to Rs 30.3 crore a year before. The segment had showed a profit in the fourth quarter of 2012-13. The hotel business continued its dull run, as profit came down by 43 per cent to Rs 8.7 crore in the quarter, compared to Rs 15.3 crore in the same period of FY13. Net sales from the segment was Rs 247 crore compared to Rs 217 crore last year, a jump of 13.8 per cent.

Agri business saw net sales declining 12.4 per cent to Rs 1,772 crore. Profits were Rs 285 crore in the quarter, up 9.6 per cent.

"Overall top line and PAT (profit after tax) growth has been below expectation. Agri business revenue dipping was a surprise,” said V Srinivasan, analyst at Angel Broking.