This story first appeared in DNA Money edition on Friday, July 27, 2012.
ITC, the diversified major with interests in consumer goods, hotels, cigarettes and paper, beat street estimates for the first quarter by reporting 20.2% on-year growth in net profit at Rs 1,602 crore (up from Rs 1,330 crore).
Earlier this week, an analyst poll by Bloomberg had indicated that ITC’s profit would grow 19% on-year to Rs 1,580 crore while sales were seen rising 16%.
Key contributors to business included growth in fast moving consumer goods (FMCG) business, price hikes in cigarettes and lower losses in ‘other FMCG’ streams.
The FMCG segment registered robust revenue growth of 23% and improved profitability, ITC said in a statement. “Agri business profits increased, largely driven by improved realisations and enriched portfolio. The paperboards, paper and packaging business witnessed robust performance driven by product mix enrichment. However, hotels business continues to be impacted by weak global and domestic economic environment.”
Rikesh Parikh, VP-markets strategy and equities, Motilal Oswal Securities, said that ITC’s numbers are broadly in line. “Key positives were the lower on-year loss in the other FMCG business and margin improvement in the FMCG business even after the high impact of duty. We expect the company to sustain its margins in the cigarettes business. We also expect the FMCG business to start contributing to the bottomline,” he said.
The company’s gross revenue (or income from operations) at Rs 9,457 crore grew by 15.3% on-year, driven primarily by branded packaged foods, educational material, stationery and the cigarettes business.
Its profit from operations grew by 21.3% on-year to Rs 2,174 crore; profit before tax (PBT) at Rs 2,337 crore was up 20.6% on-year; and earnings per share or EPS for the quarter stood at Rs2.05.
V Srinivasan, research analyst at Angel Broking, said that ITC posted healthy growth in overall net sales. But growth in the cigarettes division primarily came from price hikes.
ITC’s on-year revenues from the agri (Rs 1,691 crore) and hotel (Rs 232 crore) businesses stood flat, in line with the market expectations. Operating loss of the other FMCG business at Rs39 crore, although down on-year from a loss of Rs 76 crore, rose on a sequential basis from a loss of Rs 17 crore in the last quarter of last fiscal.
“This was a disappointment. We continue to remain neutral on the stock, as we believe it is fairly priced at current levels,” said Srinivasan.
Net sales in other FMCG grew 33% on-year to Rs 1,473 crore and losses came down from 7% to 3% of sales.
Cigarette topline grew 15% to Rs 3,304 crore with margin improving 2% on-year. After an excise duty hike of 20% in this year’s Budget, ITC hiked prices by an average 12% in April.
This month the Uttar Pradesh government hiked value-added tax (VAT) on cigarettes to 50% from 17.5%. Analysts expect the company to increase prices 36-40% in UP and 1.5-2% elsewhere to mitigate the impact of the VAT hike.
ITC, the diversified major with interests in consumer goods, hotels, cigarettes and paper, beat street estimates for the first quarter by reporting 20.2% on-year growth in net profit at Rs 1,602 crore (up from Rs 1,330 crore).
Earlier this week, an analyst poll by Bloomberg had indicated that ITC’s profit would grow 19% on-year to Rs 1,580 crore while sales were seen rising 16%.
Key contributors to business included growth in fast moving consumer goods (FMCG) business, price hikes in cigarettes and lower losses in ‘other FMCG’ streams.
The FMCG segment registered robust revenue growth of 23% and improved profitability, ITC said in a statement. “Agri business profits increased, largely driven by improved realisations and enriched portfolio. The paperboards, paper and packaging business witnessed robust performance driven by product mix enrichment. However, hotels business continues to be impacted by weak global and domestic economic environment.”
Rikesh Parikh, VP-markets strategy and equities, Motilal Oswal Securities, said that ITC’s numbers are broadly in line. “Key positives were the lower on-year loss in the other FMCG business and margin improvement in the FMCG business even after the high impact of duty. We expect the company to sustain its margins in the cigarettes business. We also expect the FMCG business to start contributing to the bottomline,” he said.
The company’s gross revenue (or income from operations) at Rs 9,457 crore grew by 15.3% on-year, driven primarily by branded packaged foods, educational material, stationery and the cigarettes business.
Its profit from operations grew by 21.3% on-year to Rs 2,174 crore; profit before tax (PBT) at Rs 2,337 crore was up 20.6% on-year; and earnings per share or EPS for the quarter stood at Rs2.05.
V Srinivasan, research analyst at Angel Broking, said that ITC posted healthy growth in overall net sales. But growth in the cigarettes division primarily came from price hikes.
ITC’s on-year revenues from the agri (Rs 1,691 crore) and hotel (Rs 232 crore) businesses stood flat, in line with the market expectations. Operating loss of the other FMCG business at Rs39 crore, although down on-year from a loss of Rs 76 crore, rose on a sequential basis from a loss of Rs 17 crore in the last quarter of last fiscal.
“This was a disappointment. We continue to remain neutral on the stock, as we believe it is fairly priced at current levels,” said Srinivasan.
Net sales in other FMCG grew 33% on-year to Rs 1,473 crore and losses came down from 7% to 3% of sales.
Cigarette topline grew 15% to Rs 3,304 crore with margin improving 2% on-year. After an excise duty hike of 20% in this year’s Budget, ITC hiked prices by an average 12% in April.
This month the Uttar Pradesh government hiked value-added tax (VAT) on cigarettes to 50% from 17.5%. Analysts expect the company to increase prices 36-40% in UP and 1.5-2% elsewhere to mitigate the impact of the VAT hike.
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