BackCigarette sales push up ITC net profit by 17%
Cigarette sales push up ITC net profit by 17%
PremiumTrying times: The ITC Maurya in New Delhi. The firm says its hotel business has been hit by lower occupancy on falling international travel. Harikrishna Katragadda / Mint
Kolkata: Notwithstanding a modest 4.7% increase in net revenues, ITC Ltd—the country’s biggest tobacco company—beat expectations with a 17.3% year-on-year jump in net profit in the quarter that ended in June, driven by a sharp increase in income from cigarette sales.
ITC reported a net profit of Rs878.7 crore in April-June, compared with Rs748.67 crore in the corresponding period a year ago. The earning per share (EPS) for the quarter was Rs2.33.
Revenue from agricultural commodities business fell 49% year-on-year to Rs940.61 crore, while that from its hotel business was 27.68% lower at Rs172.81 crore.
In an indication that the hike in cigarette prices had not dented sales, net revenues from the cigarette business rose 23.3% to Rs2,145.60 crore. Though operating profit margin contracted slightly, pre-tax profit from cigarette sales rose 17% to Rs1,125.39 crore.
Over the past few months, ITC has raised the prices of some of its key brands such as Gold Flake Kings, Classic, State Express 555 and Benson and Hedges to shore up margins.
ITC’s shares rose 5.5% to close at Rs229.95 each on the Bombay Stock Exchange, or BSE, on Thursday, while the bourse’s 30-share BSE Sensex index advanced 2.6%.
“Cigarettes did extremely well, but there’s nothing else in the results," said Anand Shah, a research analyst with Angel Broking Ltd. “The 17% increase in net profit was marginally higher than our expectation—we were expecting around 15%."
“VAT was introduced on cigarettes in 2007 at a uniform rate of 12.5% across the country," ITC said. “Maintaining uniform rates of tax was critical to preventing unhealthy tax rate war and trade diversion among states and union territories. The current increase in VAT would provide an attractive tax arbitrage opportunity and encourage illegal inter-state flow of cigarettes."
Despite a sharp drop in revenues, profit from agricultural commodities business went up 30.5% over the corresponding period last year to Rs99.89 crore.
“Stellar performance of the leaf tobacco portfolio was one of the key contributors to this quarter’s robust performance," ITC said.
The company blamed the 27.68% decline in revenue in its hotel business to “steep reduction in international travel" which resulted in “significant slide in occupancies and average room rates". Profit from the business in the quarter till June at Rs30.59 crore was 64.12% lower than the same period last year.
Revenue from ITC’s non-cigarette consumer goods business increased 9.5% year-on-year to Rs757.25 crore. And the company managed to cut losses in the segment from Rs122.61 crore a year ago to Rs99.77 crore in the quarter till June.
Yet analysts weren’t impressed. The Rs100 crore loss in the segment was in line with expectations, said Shah. “ITC had indicated that loss in its non-cigarette fast moving consumer goods (FMCG) business would be around Rs400 crore in fiscal 2010, but what’s concerning is the quarter-on-quarter decline in sales. Non-cigarette FMCG sales was around Rs840 crore in the quarter till March," he added.
The company admitted that the slowdown in the economy had taken a toll on what it terms lifestyle retailing, or ready-made garments business. “However, renegotiation of rentals and rationalization of uneconomical stores have helped improve store margins," ITC said.
Its foods business, however, wasn’t affected by the downturn in the economy, claimed ITC. “The branded packaged foods business continued to expand with sales growing over the previous year," ITC added in a statement.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
