BackITC profit up 26% on price hike
ITC profit up 26% on price hike
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Mumbai: India’s largest cigarette maker ITC Ltd said on Friday that net profit for the March quarter rose 26% from a year ago after it raised cigarette prices and improved the sale of other consumer goods.
Net profit rose to ₹ 1,614.36 crore in the three months ended 31 March from ₹ 1,281.48 crore a year earlier, the company said in a statement.
On a sequential basis, however, net profit declined 5% from ₹ 1,701 crore in the three months ended December.
Revenue rose 17% to ₹ 6,954.64 crore from ₹ 5,948.3 crore a year ago.
ITC said in the statement its earnings were “impressive". The results should be viewed in the context of an economic slowdown, high inflation and the cascading impact of an increase in value-added tax on cigarettes, it added.
While net revenue from cigarettes remained flat compared with the December quarter, when prices were raised, revenue from consumer goods other than cigarettes jumped 18% to ₹ 1,616.5 crore.
Revenue from non-cigarette consumer goods rose 23% year-on-year (y-o-y) and the company’s loss in the segment was arrested to a record low of ₹ 16.68 crore, exceeding analysts’ forecasts. The loss in the segment was ₹ 67.84 crore a year ago and ₹ 46.63 crore in the three months ended December.
“While it is a good sign that ITC’s diversifications into non-cigarette consumer goods business are yielding better earnings, the pressure on margins from its core business of cigarettes is a cause of worry," said S.P. Tulsian, an independent stock market analyst.
ITC’s consumer goods portfolio includes branded packaged foods, personal care products, education and stationary products, lifestyle products, incense sticks, and safety matches.
With an increase in the portfolio, the company is “posing tough competition" to other players, including market leader Hindustan Unilever Ltd (HUL), Marico Ltd, Godrej Consumer Products Ltd and Dabur India Ltd, said Rajesh Agarwal, head of research at Kolkata-based Eastern Financiers Ltd.
HUL posted a 20.6% rise in net profit in the March quarter.
In terms of revenue, ITC’s cigarette sales rose 17.4% from a year ago to ₹ 3,249.88 crore and accounted for 47% of the total.
The operating profit from cigarettes was ₹ 1,757.88 crore, up 19.5% from a year earlier, but down 4.6% from the December quarter.
The segment yielded 77.5% of the company’s pre-tax profit of ₹ 2,268.36 crore, down from 81.4% in the December quarter.
While a “progressive rise in price" of cigarettes kept earnings buoyant on a y-o-y basis, the fall in the sale of cigarettes by volume, led by a price hike and improved health consciousness, was evident from the sequential decline in profit, Tulsian said.
“The sequential fall in profit may also be attributed to a seasonal rise in cigarette consumption in the festival season in the December quarter," said an analyst in a brokerage firm who didn’t want to be quoted.
ITC said its hotel business was “impacted by the weak economic environment", and segment turnover fell 4.8% from a year ago to ₹ 285.9 crore.
“Though an immediate dampener, the hotel business would give it long-term capital gains as the company owns most of its hotels," Tulsian said.
ITC’s operating margins from cigarettes expanded 95 basis points to 54.09% from a year ago, while it fell by 295 basis points from the December quarter. A basis point is one-hundredth of a percentage point.
Revenue from the agribusiness rose 30% to ₹ 1,414.22 crore, while profit from the segment increased 5.8% to ₹ 105.56 crore from the year earlier. However, profit dropped 25.4% compared with the December quarter.
Turnover from the paper and paperboard segment rose 6.8% to ₹ 979.94 crore. Profit from the segment was flat at ₹ 195.8 crore on a y-o-y basis, while sequentially it posted a 12.7% decline.
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