India’s largest cigarette maker, ITC, has posted a 21 per cent increase in net profit to Rs 1,836.4 crore in the second quarter over the same period last year, beating market expectations.
Gross revenue/income from operations at Rs 10,223.8 crore grew 19 per cent, driven by branded packaged foods, agri business and cigarettes. Profits from operations grew 21.8 per cent to 2,499.41 crore, while profit before tax grew 20.1 per cent to Rs 2,661.10 crore, driven primarily by a steep rise in cigarette prices and reduced losses in the non-cigarette FMCG segment.
The performance, described by analysts as “stellar”, reflected in the stock price. The stock touched an all-time high of Rs 299.20 on the Bombay Stock Exchange and closed 2.1 per cent higher compared to the previous close, even as the Sensex was marginally down 0.6 per cent, and the BSE FMCG index up 0.84 per cent.
The hotels segment, however, was muted on account of weak economic conditions in international markets and India, though it didn’t deter the company from launching its super-premium offering, the ITC Grand Chola in Chennai. Pre-tax profits in hotels was lower at Rs 15.30 crore, compared to Rs 43.44 crore in the corresponding quarter of the previous year.
"ITC delivered a stellar set of numbers, which were ahead of our estimates. Operating profit margin came in at 36.5 per cent, up 121 basis points year-on-year, with the cigarette business posting a healthy margin expansion," said V Srinivasan, research analyst at Angel Broking.
Price rise in cigarettes has helped sustain segment margin at 32.4 per cent, while taking the share of cigarettes in total earnings before interest and tax higher by 300 basis points to almost 80 per cent. Cigarette volumes, a concern in the wake of the price rises, grew 0.3-0.5 per cent in September, according to analysts, who had expected a flat to minor decline in volumes.
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“The launches in the new filter segment (cigarette length not exceeding 65 mm) have met with favourable consumer response, and the business is rolling out the products to target markets,” an ITC statement read.
The company has, however, expressed concern on discriminatory taxation and regulatory framework against cigarettes in India. There are about 30 different effective tax rates across the country.
Lower losses in the other FMCG business (Rs 30 crore compared to Rs 56 crore in the same period previous year) that includes branded packaged foods, personal care, education & stationery products, have also helped improve operating profit margin. The loss was also lower than the Rs 36 crore reported in the June quarter.
Analysts are expecting losses in the other FMCG business to decline further, with break-even expected in the next three-four quarters.