Kolkata: ITC Ltd, India’s largest tobacco firm, on Thursday posted a first-quarter profit increase of 10.1%, missing analyst estimates, as higher taxes and measures such as bigger graphic warnings on cigarette packets hurt sales.
Net profit rose to ₹ 2,384.67 crore in the three months ended 30 June from ₹ 2,166.09 crore a year earlier, the Kolkata-based firm said on Thursday. ITC had been expected to report a profit of ₹ 2,485.3 crore, based on a Bloomberg poll of 23 analysts. Revenue, net of excise duty, rose 9.76% to ₹ 10,054.04 crore from ₹ 9,160.2 crore.
The government raised taxes on tobacco in its February budget. It asked cigarette makers to carry bigger graphic warnings on packets to discourage smoking, which is linked to the deaths of a million Indians every year. The measures have contributed to lower cigarette sales by volume.
Though ITC’s revenue and operating profit growth was slightly lower than expectations, investors should take heart from the widening of the operating margin in the cigarette business, said an analyst at Cholamandalam Securities Ltd, requesting anonymity.
ITC said gross revenue from cigarettes rose 6.42% from a year earlier to ₹ 8,230.6 crore. Sales were impacted, it claimed, because of a continuing decline in the sale of legally manufactured (as opposed to smuggled) cigarettes in India. Pre-tax profit grew at a disappointing 8% from a year earlier to ₹ 3,004.58 crore.
Still, ITC managed to expand its operating margin from the segment to 36.5% from 35.96% a year ago. Its pre-tax profit from cigarettes represents 81.74% of ITC’s total June quarter pre-tax profit of ₹ 3,675.4 crore.
Despite “sluggish demand", ITC’s gross revenue from the non-tobacco consumer goods segment rose 9.5% from a year ago to ₹ 2,385.15 crore and pre-tax loss narrowed to ₹ 4.52 crore from ₹ 7.97 crore a year ago.
The analyst cited above said he had expected the operating result of this segment to be positive in the quarter. ITC said the segment did not break even because it had spent more during the quarter this year on brand building and promotions.
“In the coming quarters, cigarette volume is expected to remain flat but FMCG (fast-moving consumer goods) performance will improve in line with the market," said Sachin Bobade, an analyst at HDFC Securities.
Revenue from its hotels business remained flat at ₹ 287.36 crore, but it managed to post a pre-tax profit of ₹ 1.22 crore compared with a loss of ₹ 7.97 crore a year ago. It said the business was hurt by weak demand because of “excessive" room inventory in key markets. Still, the firm remains committed to building more hotels.
Revenue and pre-tax profit for the paper and paperboards business fell marginally to ₹ 1,322.9 crore and ₹ 247.69 crore, respectively. The segment suffered from weak demand and cheap imports from China, ITC said.
While revenue from the farm commodity business jumped 16.8% from a year earlier to ₹ 2,794.08 crore, pre-tax profit from the segment remained little changed at ₹ 237.31 crore.
Sounak Mitra in Delhi contributed to this report.