BackITC Q3 profit falls short of expectations
ITC's net profit rose just 0.67% to Rs2,652.82 crore in the quarter ended 31 December, revenue rose 2.61%
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New Delhi: ITC Ltd on Friday reported fiscal third quarter (Q3) earnings that fell short of expectations as it sold fewer cigarettes and demand for packaged consumer goods remained tepid.
Net profit rose just 0.68% to ₹ 2,652.82 crore in the quarter ended 31 December from ₹ 2,635 crore a year ago. Revenue rose 2.62% to ₹ 9,176.73 crore from ₹ 8,942.59 crore.
The Kolkata-based company with interests in cigarettes, packaged food, personal care, apparel, hotels and information technology, had been expected to post a net profit of ₹ 2,760 crore, according to a Bloomberg poll of 28 analysts.
ITC shares rose 0.69% to 308.65 apiece on BSE at the close of trading on Friday, while the benchmark Sensex gained 1.98% to end at 24,435.66 points. The results were announced after the markets closed.
“The company’s performance during the quarter remained subdued reflecting the severe pressure on legal cigarette industry volumes, lack of trading opportunities in agri-commodities and sluggish demand environment prevailing in the fast-moving consumer goods (FMCG) industry," ITC said in a statement.
According to the company, taxation and regulatory headwinds facing the legal cigarette industry in India crimped its sales growth. Cigarette sales increased 5.7% to ₹ 4,379.86 crore from ₹ 4,141.94 crore in the year-earlier period.
Revenue from the farm commodities segment dropped 7.3% to ₹ 1,480.99 crore during the quarter from ₹ 1,597.66 crore a year ago. Revenue from the paper board, paper and packaging business grew 5.1% to ₹ 1,260.03 crore in the quarter from ₹ 1,198.77 crore a year earlier.
“Segment revenue and profits for the quarter were impacted by lack of export opportunities in wheat, soya and coffee besides subdued demand for Indian leaf tobacco exports," ITC said.
While exports of Indian wheat were adversely impacted by lower international prices and poor quality due to unseasonal rains, soya trading opportunities remained constrained due to adverse price parity in view of higher crop output in major regions, it added.
Leaf tobacco exports from India were impacted due to soft demand arising out of higher levels of uncommitted stocks and decline in global cigarette volumes. Steep currency depreciation in competing locations also weighed on the prospects of agri-commodity exports from India, ITC said.
ITC’s revenue from the packaged consumer goods business grew 7% to ₹ 2,477.65 crore during the quarter from ₹ 2,314.12 crore in the year-ago period.
“Weak demand—particularly in rural markets—coupled with a price deflationary environment and supply chain disruption caused by heavy rainfall and floods in Chennai impacted revenue growth. Additionally, synchronisation of trade pipeline ahead of the ensuing season by the education and stationery products business impacted revenue during the quarter," ITC said in the statement.
According to the company, gross margin across most categories improved, backed by product mix enrichment and benign input costs.
“However, segment results were impacted by gestation costs of new categories, namely, juices, gums and dairy and continuing brand investments towards communicating the superior value proposition offered by YiPPee noodles," it added.
ITC’s personal care business was also impacted due to “deflationary pricing environment" during the quarter, it added.
“ITC has underperformed for the whole of last year, and now Q3 too is disappointing. It is likely that the stock will correct but not more than 10%," independent equity analyst Ambareesh Baliga said in a discussion on CNBC-TV18.
“People want to exit ITC, especially high networth individuals, because the company has not shown any marked improvement in its earnings for the last few quarters," equity investment advisor S.P. Tulsian said during the same discussion.
In a separate filing to BSE, ITC said its chief financial officer Rajiv Tandon has been appointed a director on the company’s board.
“Tandon is responsible for finance, accounting, internal audit and investment subsidiaries of the company," it added.
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