Kolkata: ITC Ltd, the country’s biggest cigarette manufacturer, on Friday said net profit rose 25.8% to Rs1,009.91 crore in the quarter ended September from the year-ago period, driven largely by a 21.35% increase in revenues from cigarette sales.
Sales rose 14% to Rs4,292.59 crore, boosted by the better- than-expected performance of all divisions except hotels. Profit beat the median estimate of Rs924 crore by 20 analysts polled by Bloomberg.
Revenues from agri-business jumped 19% to Rs1,028.28 crore, while the paperboards division posted net sales of Rs790.38 crore, 12.8% higher than last year. Revenues from the hotel business, however, declined 23.77% from last year to Rs186.28 crore because of poor occupancy and average room tariff, ITC said in a press statement.
The company managed to reduce losses in its non-cigarette fast moving consumer goods business during the quarter to Rs85 crore, from Rs116.55 crore a year ago.
Profitable retailing: A Wills Lifestyle store on Camac Street in Kolkata. All Wills Lifestyle stores across 30 cities are now recovering costs, according to Atul Chand, chief executive of ITC’s lifestyle retailing division. Indranil Bhoumik /Mint
It may not be long before the new businesses that ITC launched, such as personal care products, packaged food and apparel, start contributing to the company’s profits, according to analysts.
The lifestyle retailing business has already turned profitable. Over the past year, ITC has managed to reduce rents by as much as 30% and all Wills Lifestyle stores in 30 cities are now recovering costs, according to Atul Chand, chief executive of ITC’s lifestyle retailing division.
Apart from this, about one-fifth of the lifestyle retailing division’s revenues come from contract manufacturing of garments and accessories for designer brands such as Calvin Klein, Polo Ralph Lauren, Trussardi and MaxMara. “Exports are a high-margin business,” Chand added.
ITC currently has some 50 Wills Lifestyle stores, which sell ready-made apparel. Over the next six months, it is going to launch at least two stores a month, said Chand. The company is now looking to enter cities with smaller populations, and for the first time, is going to get into local franchise arrangements.
“The knowledge of the market is really important. So to enter tier-II and tier-III cities, we are looking to tie up with local businessmen,” he added.
The company, which currently manages all its stores, will design the franchisee-managed stores and train their staff.
ITC also sells apparel under the John Players brand, aimed at the mass market segment, through about 250 stores.
“At the beginning of the year, ITC had taken a lot of steps to rationalize costs in all its businesses,” said Anand Shah, research analyst at Angel Broking Ltd. “The results are visible.”
Net margins during the quarter expanded to 23.5% compared with 21.3% a year ago, he added. Gross margins in the cigarette business expanded to 56.9%, from 55.56% in the second quarter of fiscal 2009.
Diversification pays: ITC chairman Y.C. Deveshwar. Rajkumar /Mint
Analysts estimate cigarette sales to have grown by volume too during the quarter till September. “It could have been a nominal growth—say 5-6%— but it seems there was some volume growth,” said Shah. Cigarette sales accounted for about 51% of ITC’s net revenues during the quarter till September.
ITC shares rose 5% to Rs259.85 apiece on the Bombay Stock Exchange on Friday, while the bourse’s benchmark equity index, the Sensex, closed marginally higher at 16,810 points.
“The robust performance seen in the July-September quarter should be sustainable,” said Rajesh Agarwal, director of CD Equisearch Pvt. Ltd, a Kolkata-based broking firm. “It should continue for at least two more quarters, and in the second half of the year, even hotels should perform better.”
ITC said its hotels had witnessed some “recovery in business in the last couple of weeks of the quarter (till September)”. Pre-tax profit from hotels during the quarter fell to Rs31.56 crore, from Rs68.74 crore last year.
Pre-tax profit in all other businesses was higher than fiscal 2009. Pre-tax profits from cigarettes was 24.3% higher at Rs1,251.67 crore. Though net revenues from the paperboard business increased only 12.8%, pre-tax profit at the division jumped 52.33% to Rs186.22 crore. “Investments made in the paperboard business last year have started paying off,” said CD Equisearch’s Agarwal.
Pre-tax profit from the agri-business during the quarter more than doubled to Rs174.08 crore from Rs76.40 crore, largely due to robust sales of leaf tobacco, ITC said. The company is India’s biggest leaf tobacco exporter.
ITC’s earnings per share for the July-September quarter was Rs2.67, 14.6% higher than the quarter till June.
Bloomberg contributed to this story.