ITC’s net profit for the third quarter (Q3) ended December 31, 2008, grew by just 8.7 per cent to touch Rs 903 crore while net turnover grew 11 per cent to Rs 3,833 crore over Q3 of the last financial year.
A sharp rise in profits from cigarette sales and the agri-business division enabled the company to raise profits, defying galloping losses from its non-FMCG business (comprising personal care items, foods, garments, educational products, matches and agarbattis) and falling profits from its hotels and paper business groups.
The company release on Q3 results referred to higher paperboard and packaging revenues, more thrust on stationery and personal care businesses, and superior product mix in cigarettes as factors offsetting the impact of a sharp slowdown in the hotels business during the quarter.
According to the company, the decline in hotel revenues due to the economic slowdown and the terror attacks in Mumbai led to a significant slide in occupancies and average room rates, particularly in December, traditionally the strongest month.
ITC results revealed that the company had employed capital of Rs 2,321 crore in its losing non-cigarette FMCG business, against only Rs 2,879 crore of capital employed in its hugely profitable cigarettes business, Rs 2,069 crore in its hotel properties, Rs 3,802 crore in its paper business and Rs 835 crore in its agri-business division which has its award-winning e-choupal network as its backbone.
“The company has invested in the wrong business in the downturn – the money would have been better employed in businesses with greater potential,” said analysts here.
According to Anand Shah, sector analyst with Angel Broking, “The margin expansion was much higher than we had expected, mainly because consumers uptrading from non-filter to filter cigarettes and the price hikes. The FMCG topline growth has been the lowest in comparison to last few quarters.”
In Q3, revenues and profits of the company’s hotels business have declined by 14 per cent and 34 per cent, respectively.
Construction activity in respect of the super deluxe luxury hotel projects at Bangalore and Chennai is progressing satisfactorily as per the respective project plans.
The company also pointed out that due to high commodity prices and store rentals, brand building costs of its new personal care portfolio and the significant investments in augmenting distribution infrastructure and systems, exerted intense pressure on profitability during the quarter. As a result, profit after tax, which was flat during the first quarter of the financial year 2008-09, grew by 8.7 per cent to touch Rs 903 crore. Earnings per share stood at Rs 2.40 (SPLY Rs 2.21).
For its FMCG business, ITC pointed out that the extraordinary increase of 140 to 390 per cent in the excise duty rates on non-filter cigarettes in the 2008 Union budget, following a 30 per cent increase in tax incidence in the previous year, drove the organised cigarette industry to substantially vacate this category.
