Higher prices of cigarettes prop up ITC profit by 10%

Higher prices of cigarettes prop up ITC profit by 10%
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First Published: Sat, May 23 2009. 12 51 AM IST

Updated: Sat, May 23 2009. 12 51 AM IST
New Delhi: The country’s biggest tobacco company, ITC Ltd, posted a 10% increase in fourth quarter profit on higher prices of cigarettes.
Net profit rose to Rs809 crore in the three months ended 31 March, from Rs736 crore a year earlier, the company said in a statement to the Bombay Stock Exchange (BSE) on Friday. That compares with the Rs824 crore median estimate of 13 analysts surveyed by Bloomberg.
ITC, 32% owned by British American Tobacco Plc., raised prices of some brands in June and again in April after the government increased taxes on cigarettes. The Kolkata-based firm is expanding sales of shampoo, food, clothing and other goods as the government increases taxes and restrictions on cigarettes, which account for about half of its revenue.
The cigarette maker’s shares rose 0.60% to Rs183.25 each on BSE, on a day the exchange’s benchmark index gained 1.1% to 13,887.15 points. ITC has climbed 6.9% this year, trailing the 44% gain in the Sensex.
The company on Friday announced a dividend of Rs3.70 per share, 20 paise more than last year.
Analysts, however, are impressed with the growth in revenue and rise in profits from cigarette sales during the quarter till March. Revenue grew 16.25% over the previous year to Rs2,011.54 crore, while net margin from cigarette sales grew 310 basis points. This resulted in overall margin in Q4 expanding by 590 basis points, said Anand Shah, an analyst with Angel Broking Ltd. One basis point is one hundredth of a percentage point.
“The increase in margins from cigarette sales is way ahead of what we had expected,” Shah said. Profit before tax and one-time gains rose 24% to Rs1,080 crore.
The government imposed a nationwide ban on smoking in public places, including office buildings, restaurants and pubs on 2 October to prevent smoking-related diseases. The country’s top court on 29 September rejected ITC’s petition challenging the ban.
Tobacco use may cause about one million deaths a year in India by 2010 unless steps are taken to encourage more people to shed the habit, said Prabhat Jha, a researcher at the Toronto-based Centre for Global Health Research.
ITC’s total revenue in Q4 fell 2.8% to Rs3,930 crore. Analysts expected Rs4,300 crore. Other income, which includes investments, fell 67% to Rs35.6 crore.
Revenue from ITC’s hotel business fell for the second straight quarter because of the global recession and terrorist attacks in Mumbai in November. Revenue declined 29% to Rs221 crore in the quarter. Profit before taxes and interest halved to Rs71.1 crore.
The firm said the losses incurred in the new businesses that includes garments, greeting cards, incense sticks and food narrowed to Rs117 crore, from Rs118 crore a year earlier. Revenue rose 14% to Rs837 crore.
Profit before tax and one-time gains or costs at the company’s agriculture business, which includes commodity trading, rose 43% to Rs53.06 crore. Revenue dropped 51% to Rs526 crore. Revenue from the paper business rose 26% to Rs714 crore in the quarter. Profit before tax and interest rose 24% to Rs152 crore.
“The results aren’t great, but not disappointing either. Particularly heartening is the 20% growth in ITC’s newly launched FMCG businesses. Also, it is very significant that losses in these businesses have stabilized,” said Rajesh Agarwal, an analyst with Kolkata-based broking firm CD Equisearch Pvt. Ltd.
Aniek Paul of Mint contributed to this story.
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First Published: Sat, May 23 2009. 12 51 AM IST
More Topics: ITC | Profit | BSE | Tobacco | Hotel |