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Diversified conglomerate ITC has reported a 16.3 per cent jump in net profit at Rs 2,385.34 crore for the quarter ended December 2013, against Rs 2,051.85 crore in the year-ago period. Net sales rose 13.1 per cent to Rs 8,623.11 crore. Consensus Bloomberg estimates had pegged the sales and net profit at Rs 8,516 crore and Rs 2,366 crore, respectively.
Higher-than-expected revenue growth and a rise of 51 basis points in earnings before interest, tax, depreciation and amortisation margin at 36.9 per cent led to the net profit beating estimates. Price rises in the cigarettes business drove margin, revenue and profit growth.
The non-cigarette fast-moving consumer goods (FMCG) business reported a profit of Rs 10.35 crore, against a loss of Rs 24 crore in the year-ago period, driven by enhanced scale and improvement in operating leverage, the company said. The business also reported 16.6 per cent annual growth in net sales at Rs 2.078 crore. Sustainability of this division’s profitability will be a key positive for the company and provide support to the stock.
“As anticipated, the non-cigarette FMCG business has made a profit for the second time. The cigarette volume dip has also been better than expected, at two-2.5 per cent,” said an analyst with Sharekhan. The cigarettes division posted sales growth of 12.5 per cent at Rs 4,116.07 crore, against Rs 3,657.36 crore a year ago. This was the third consecutive quarter when the company’s cigarettes volume fell; a recovery in this segment is expected in FY15, analysts say.
Rikesh Parikh, vice-president (institution corporate broking), Motilal Oswal Securities, expects the decline in ITC’s cigarette volumes to be arrested in the fourth quarter of FY14 and recover in FY15. The non-cigarette FMCG business will report earnings-before-interest-and-tax breakeven in FY14, he says. ITC offers the best earnings visibility in the sector, Parikh says, adding the company is trading at a discount to most consumer firms. He maintains a ‘buy’ rating on the stock.
Profit in the hotels business rose, even as sales were hit by subdued growth in the sector. The division recorded a profit of Rs 62.20 crore, against Rs 55.49 crore a year ago, a rise of 12.09 per cent, primarily due to a good performance by the ITC Grand Chola property. Net sales from the division increased two per cent year-on-year to Rs 315.44 crore. Higher realisation and a superior mix aided profits from the agri business (up 19 per cent to Rs 205.40 crore). Net sales from this business stood at Rs 1,786.37 crore, up 9.53 per cent.
In the paperboard business, even as net sales rose 18.45 per cent to Rs 1257.43 crore, profit increased just 1.36 per cent to Rs 231.69 crore. The price rises and cost rationalisation were only able to offset a part of the rise in input costs. ITC’s net profit also got a fillip from the 18.8 per cent rise in other income at Rs 391 crore.
“Cigarette margins have remained strong, registering a 3.3-percentage-point gain approximately (profit before interest and tax/gross sales basis). Along with margin improvements in the hotels and non-cigarette FMCG segment, strength in cigarette margins helped surprise us positively on operating profits,” said Ritwik Rai, FMCG analyst, Kotak Securities.
On Thursday, the ITC stock closed at Rs 324.85 on BSE, down 0.26 per cent, against a one per cent fall in the S&P BSE Sensex. At the current price, the stock is trading at 25 times the FY15 estimated earnings (according to Bloomberg), above its historical average one-year forward price/earnings multiple of 22.
