ITC posts 37% rise in net profit at Rs 4,175 crore, beats street estimates

Despite a challenging business environment, particularly in the rural belt, cigarettes to hotels major ITC beat Street estimates to post a 37 per cent rise in net profit to Rs 4,175 crore for the quarter ended September 30, primarily via the government’s tax benefit measures.

The Street was expecting a rise of around 25 per cent. Total income rose 6.6 per cent to Rs 13,497 crore during the quarter, the second one (Q2) of this financial year. Gross profit rose 11.3 per cent to Rs 5,042 crore.

ITC pointed to some measures as having helped it get over the muted demand in the markets. 

Among these were judicious extending of credit to select trade partners, increase of direct reach, targeted offers for consumers, investment in fast-growing channels like modern trade and e-commerce to maintain the pace of demand for its products and a higher frequency of market servicing.

The difference between pre-tax and post-tax profit is Rs 867 crore. ITC said deferred tax liabilities as on March 31 and the estimate of tax expense for financial year 2019-20 had been remeasured and the resulting impact was being recognised over the current and remaining quarters. Consequently, tax expense for the Q2 period includes a credit of Rs 349.6 crore.

Abneesh Roy, executive vice-president at Edelweiss Securities, es-timated three per cent volume growth in its cigarette sales. This segment accounted for nearly 43.3 per cent of total revenue at Rs 5,842 crore and 80 per cent of the pre-tax profit at Rs 4,036 crore. A 3-4 per cent price hike in earlier quarters led to improvement in realisation from sales.

The company said the performance of cigarettes in Q2 reflected the persistent weakness in overall demand, especially in the rural markets and wholesale channels, and tight market liquidity. Exacerbated by disruptions and floods in some of its markets.

Led primarily by atta, potato chips, premium cream biscuits, bodywash and others, its non-cigarette fast moving consumer goods (FMCG) business grew around four per cent to Rs 3,296 crore in revenue. Excluding the lifestyle retailing business, the segment's operating earnings rose 39 per cent to Rs 221 crore, with the margin expanding by 170 basis points and gross profit from this category rising 52.3 per cent to Rs 92 crore. 

“This is despite stepping up marketing investments, gestation and start-up costs of new categories and new facilities,” ITC said.

Driven by earnings from its recently commissioned hotels, that segment saw a rise of nearly 17 per cent in revenue at Rs 445.8 crore; profit fell 1.8 per cent to Rs 17 crore. Due, it said, to the impact of additional depreciation on the new properties. 

“A sluggish demand environment contributed to relatively muted performance of the other properties,” ITC added. 

The company said there was steady progress in construction of its hotels in Ahmedabad, Guntur and Bhubaneswar. A 101-room WelcomHotel in Amritsar was completed and operations would commence from November 1. In its agricultural business, focused on strengthening its value-added products to cater for the food services channel, gross profit rose four per cent to Rs 249 crore in Q2.

In paperboard and packaging, revenue rose nearly 10 per cent to Rs 1,565 crore. Partially offset by muted demand for packaging and printing products due to sluggish demand conditions in the FMCG and liquor industries.

ITC said it had been ranked first globally among peers, with an overall rank of third, on ESG performance (environmental, social and corporate governance) in the food products industry by Sustainalytics, a global ESG ratings company.