New Delhi: Officials of ITC Ltd, India’s biggest tobacco company, said first quarter (Q1) profit rose a more than expected 20% after an increase in cigarette prices offset the impact of a new sales tax.
Net income rose to Rs783 crore in the three months ended 30 June, from Rs652 crore in the year-ago period, the Kolkata-based company told the Bombay Stock Exchange (BSE). The company’s profit figures beat the Rs710 crore median estimate of five analysts surveyed by Bloomberg. Sales gained 12% to Rs5,280 crore.
ITC raised cigarette prices by about 20% in the quarter due to tax increases. In the past seven years, the company, 32% owned by British American Tobacco Plc., has diversified into products such as garments, greeting cards, hotels, and incense to reduce its dependence on tobacco.
“The price hike on cigarettes seems to have adequately compensated for the increase in taxes,” said Anand Shah, an analyst at Angel Broking Ltd in Mumbai, who has a “hold” rating on the stock. “Volume growth in cigarettes seems to be decent,” he added.
Shares of ITC closed at Rs171.80 on BSE, up 3.12% on a day when the exchange’s benchmark index fell 3.4% to close at 15,234.57 points.
On 25 July, the ITC stock had gained the most in more than a year on speculation of robust cigarette sales. The company’s shares rose 8.9% that day.
ITC’s cigarette sales went up 8.9% to Rs3,440 crore in the quarter. Profit before tax and one-time gains or charges increased 15% to Rs939 crore.
The country’s 28 states started applying a 12.5% value-added tax (VAT) on tobacco products and the Union government hiked the excise tax on it in the first quarter. ITC says the changes are equivalent to a 33% tax increase.
“It appears that the cloud has somewhat lifted” on the uncertainty regarding cigarette taxes, chairman Yogesh Chandra Deveshwar told investors at the annual general meeting. “Hopefully, with the value-added tax having been introduced, there will be a much more level playing field” with other tobacco products.
Cigarette production in the country rose 5.2% to 113.85 billion sticks in the year ended 31 March, according to the Tobacco Board of India, slower than the 6.1% gain in 2006.
In the past seven years, ITC, which was founded in 1910, set up several new businesses, including stationery, matches, and rural retailing units.
In March, ITC started selling its Bingo! range of snack foods, such as potato chips. The firm hopes to get a 25% share of India’s branded snacks market within five years, Ravi Naware, divisional chief executive of foods, had said on 14 March. The market for branded snacks in India is estimated at Rs2,000 crore and growing at 30% annually, Naware added.
In May, the company said it will set up a new unit for home and personal care products.
The company’s revenue from its 75 hotels increased 11% to Rs221 crore in the quarter. Revenue from its agricultural business rose 28% to Rs1,420 crore in the quarter.