ITC net increases 9% on cigarette price rise

Analysts say sales do not give true picture as figure distorted by excise duty bump

Growth in cigarette sales helped tobacco and hospitality major ITC report a net profit of Rs 2,425 crore in the July-September quarter — a rise of 8.7 per cent.

In the same period last year, ITC’s net profit was Rs  2,230 and net sales was Rs 7775.79.

This year, for the July-September quarter, its net sales grew by 14.8 per cent to Rs 8,930.32 crore.

“After adjusting for liability written back in Q2FY14 (towards rates & taxes and interest thereon pertaining to earlier years, aggregating Rs 192.68 crores), underlying growth in Profit Before Tax and Net Profit during the quarter stood at 17.8 per cent and 15.6 per cent, respectively,” the company said in a statement.

Analysts said the results were in line with expectations. “One significant thing about ITC is that they have been able to maintain their operating margin in this quarter too,” said an analyst.

The stock ended the day marginally higher at Rs 355 versus the Sensex’s 1.9 per cent rise on Friday.

While analysts were sceptical about the cigarette segment due to the steep price rise, results showed that revenue grew by 14.15 per cent to Rs 4,250.86 crore as compared to Rs 3,723.81 crore in the corresponding quarter of last year.

ITC had raised the price of its cigarette brands by up to 23 per cent in August due to a hike of excise duty.

“This was a  challenging business environment exacerbated by a steep hike in excise duties on cigarettes for the third year in succession, as announced in the Union Budget,” the company said in a statement. The non-cigarette fast-moving consumer goods (FMCG) segment, which comprises packaged food, personal care, education and stationery products, safety matches and incense sticks (agarbattis), clocked a revenue growth of 11.9 per cent but also registered a loss of Rs 10.31 crore. “Overall this sector was hit due to consumer sentiments. With the inflation coming down and urban demand growing, the company will see a better growth rate in this segment in the second half,” said the analyst.

The hospitality business showed a sluggish performance with almost a flat revenue growth of 5.9 per cent. It also suffered a  pre-tax loss of Rs 9.58 crore. The company blamed it on the additional charge of Rs 13.4 crore towards additional depreciation charge for the quarter due to revision in the useful life of fixed assets in accordance with the provisions of Schedule II to the Companies Act, 2013. The agriculture business sector of the company registered a higher-than-expectation growth of 16.14 per cent due to better opportunities of trading in wheat, soya and coffee, the company said.

"We note this quarter's net sales figures carry the impact of inventories held ahead of the Budget. Accordingly, the net sales growth in the quarter does not provide a true picture of medium-term growth in the context of price hikes affected through the quarter, following the Union Budget," said Ritwik Rai, FMCG analyst, Kotak Securities.