ITC Q2 profit hit by tax increase on cigarettes
Kolkata: ITC Ltd, India’s biggest maker of cigarettes, on Friday announced tepid growth in its September quarter net profit as cigarette sales contracted sharply following the latest revision of taxes in July.
ITC, which also sells home and personal care products and runs hotels, said its net profit in the September quarter was Rs2,639.84 crore, up 5.6% from Rs2,500.03 crore in the same period last year. Gross revenue from sales, adjusted for a change in the tax regime, rose 3.9% to Rs16,391.58 crore.
ITC shares closed almost unchanged at Rs269.35 on the BSE in a flat market.
Naveen Trivedi, an analyst at HDFC Securities Ltd, said ITC’s net revenue was estimated to have grown 1.1% and its gross revenue at around 4% was slightly behind expectations.
Cigarette sales by volume are under “severe pressure” due to the sharp increase in taxes under the new tax regime, ITC said in a statement.
Abneesh Roy, a research analyst at Edelweiss Securities Ltd, said cigarette sales by volume were estimated to have contracted by 6%, in line with expectations.
The increase in excise duty announced previously in the Union budget and the revision of the compensation cess under the goods and services tax (GST) with effect from July together resulted in an incremental tax burden of over 20% for the company, ITC said.
However, revenue from consumer goods grew 10% year-on-year despite sluggish demand and disruption in trade channels due to the implementation of GST, ITC said.
“But ITC’s retail stores (which sell branded garments) have dragged down margins and continue to report soft numbers,” Roy said in the Edelweiss report.
Revenue from ITC’s hotels business was almost flat at Rs300.18 crore as against Rs297.34 crore last year. Room revenue grew at a “healthy pace” on account of higher tariffs but food and beverage sales were impacted by a ban on sale of liquor at hotels and restaurants close to highways, ITC said. Still, pre-tax profit from the segment jumped from Rs65 lakh last year to Rs4.24 crore.
Pre-tax profit from the paperboards, paper and packaging business grew 18% to Rs274.19 crore due to cost rationalization initiatives, the company said, adding that revenue at Rs1,309.41 crore showed muted growth due to subdued demand from consumer goods and cigarette manufacturers.
ITC’s operating profit, or earnings before interest, taxes, depreciation and amortization (Ebidta), for the September quarter grew 3.6%. The Ebidta margin expanded 89 basis points to 38.5%, but was short of expectations, HDFC Securities’ Trivedi said in his report. One basis point is one-hundredth of a percentage point.
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