Non-cigarette FMCG biz lights up ITC

The non-cigarette fast-moving consumer goods (FMCG) segment of ITC has recorded its maiden profit, helping the cigarette-to-hotel major post 19.4 per cent increase in net profit in the fourth quarter of 2012-13.

Price increases in cigarettes and the performance in the non-cigarette FMCG segment helped the company post pre-tax profit of Rs 2,729.34 crore and post-tax profit of Rs 1,927.98 crore — growth of 20.3 per cent and 19.4 per cent, respectively, over the same period last year.

The ITC stock on Friday closed marginally lower at Rs 334.70 on BSE.

The decade-old non-cigarette FMCG segment — which includes branded packaged foods, personal care, education & stationery, lifestyle retailing, safety matches and incense sticks — registered a profit of Rs 11.87 crore against a loss of Rs 16.68 crore in the year-ago period. Net turnover, at Rs 8,180.30 crore, registered growth of 19.2 per cent, driven by the non-cigarette FMCG, agri and cigarettes segments.

ITC attributed its performance to the strategy of creating multiple drivers of growth. “This performance is even more encouraging when viewed against the backdrop of the extremely challenging business context in which it was achieved, namely, the continued economic slowdown, steep increase in taxes/duties on cigarettes, gestation costs relating to the new FMCG businesses and recent investments in the paperboards, paper and packaging and hotels businesses,” a statement said.

ITC’s main profit driver, cigarettes, also recorded significant increase in sales, despite price increases. Gross cigarette sales for the quarter jumped by 17.83 per cent to Rs 6,698.73 crore compared to Rs 5,684.84 crore in a year ago period.  Profits stood at Rs 2,112.42 crore in the fourth quarter compared to Rs 1,757.88 crore, a jump of 20.17 per cent.

Varun Lohchab, MD & co-head of research, Religare Capital Markets Ltd, said: “ITC has posted a decent number on the whole with cigarettes performing strongly, with 17.5 per cent gross sales growth. Going forward, the volume growth in cigarettes in Q1 will be a key trigger for the stock from here on.”

Gross revenue for the year grew 19.9 per cent to Rs 41,809.82 crore while net revenue, at Rs 29,605.58 crore, grew by 19.4 per cent — primarily driven by a 26.4 per cent growth in the non-cigarette FMCG segment, 26.4 per cent growth in the agri business segment and 13.4 per cent growth in the cigarettes segment.

“It is expected that the non-cigarette FMCG business will report a profit before interest and tax (PBIT) of Rs 40-50 crore in FY14,” said Kaustubh Pawaskar, analyst at Sharekhan Ltd.

The company said it had to deal with high levels of input costs in its branded packaged foods segment. “These cost pressures were, however, mitigated through a combination of improvements in product and process efficiencies, smart sourcing and supply chain initiatives.”

ITC’s hotels business, however, continued to be impacted by the weak economic environment and significant additions to room inventory. Profit in the segment tanked 51 per cent to Rs 40.63 crore in the final quarter against Rs 82.88 crore in the year-ago period.     

The paperboards, paper and packaging segment saw a revenue growth of 8.91 per cent at Rs 1,124.93 crore, while segment profit stood at Rs 188.13 crore as against Rs 195.80 crore. “The relatively lower growth in segment results during the year reflects the steep hike in input prices particularly of wood, coal and chemicals,” the company noted.

The agri business reported a profit of 127.54 crore against Rs 105.56 crore in year ago period, a jump of 20.82 per cent.

Earnings per share for the year stood  at Rs 9.45 (previous year Rs 7.93). Cash flows from operations aggregated Rs 9,596 crore against Rs 8,334 crore in the previous year.