ITC Q2 net profit rises 12% to Rs 29.55 bn, meets Street estimates

ITC saw robust growth in nearly all its major business verticals

Led by robust growth in nearly all its major business verticals, cigarette-FMCG major ITC Ltd met Street estimates to post an 11.9 per cent growth in its net profit for the quarter ended September 31, 2018, at Rs 29.55 billion. The same during the corresponding quarter of the previous financial year stood at Rs 26.40 billion.  

Its gross revenue from the sale of products and services stood at Rs 110.95 billion during the second quarter of the current financial year as against Rs 96.76 billion earned in the similar quarter of the last financial year. However, ITC said that these figures are not comparable after the introduction of the Goods and Services Tax (GST), which has brought about a change in the accounting standards.

According to Abneesh Roy, research analyst and senior vice-president at Edelweiss Securities, backed by a five per cent increase in cigarette volumes and price increase in the Gold Flake brand, the company's revenue from this line of business surged 10.4 per cent to touch Rs 50.26 billion, while the pre-tax profit went up by 8.7 per cent at Rs 35.79 billion.

Roy opined that the cigarette business was impacted by 100 basis points due to the Kerala Floods and costs relating to changeover to the new graphic health warnings on cigarette packs.

"If these one-offs were not there, cigarette earnings before interest and tax (Ebit) growth would have been more than 10 per cent," Roy said.  

In a statement, ITC said, "Some of the key recent interventions include the launch of innovative variants viz, Hollywood (triple segment filter) and Flake Taste Pro (dual segment filter). Additionally, American Club and Players, which were launched towards the end of 2016-17 continue to be scaled up."

On the other hand, its revenue from the non-cigarette FMCG business also saw a 12.7 per cent jump during the quarter at Rs 31.60 billion, while the profit from this segment increased by 185.3 per cent at Rs 584.5 million.

The earnings before interest, taxes, depreciation, and amortisation (Ebitda) from this segment stood at Rs 1.58 billion, registering a 77 per cent growth on the back of enhanced scale, product mix enrichment and cost management initiatives, despite sustained investment in brand building and gestation costs of new categories such as juices, dairy & chocolates, and others. 

"The business continued to focus on deepening consumer engagement through innovative brand campaigns in conventional and social media platforms. During the quarter, it reintroduced Charmis skin creams with a fresh look and enhanced sensorial experience supported by a focused campaign showcasing the brand's core value proposition," the company statement said.

The hotels business posted a 20.8 per cent growth in its revenue at Rs 3.63 billion and a 35 per cent increase in its Ebitda driven by higher room rates, increase in occupancy, strong food & beverage sales and high operating leverage, notwithstanding gestation costs of new properties.  

During the quarter under review, ITC obtained possession of the 252-room Park Hyatt Goa Resort & Spa. Construction of new ITC Hotels at Kolkata and Ahmedabad and WelcomHotels in Guntur and Bhubaneswar are underway. 

The paperboards, paper and packaging business witnessed an 8.8 per cent growth in its revenue at Rs 14.24 billion driven by strong demand and capacity augmentation in value-added paperboard and décor segments. 

"Operations of the Bleached Chemical Thermo Mechanical Pulp mill were further scaled up during the quarter, thereby reducing import dependency and delivering substantial savings to the business, especially in view of the sharp increase in imported pulp prices in recent months. Capacity utilisation of the recently commissioned décor machine at the Tribeni unit was also scaled up during the quarter," the company said.

On the agri business front, profitability fell by 7.8 per cent at Rs 2.36 billion, although the topline increased by 12.8 per cent at Rs 22.2 billion.