ITC : New brands provide necessary growth succour, neutralise impact of fiscal imposts

ITC’s strategy of floating new brands and multiple growth drivers has paid off in terms of a 16 per cent rise in its net profit at Rs.397 crore on Rs.1,486 crore sales, up 3.6 per cent during the quarter to June 2003. Other income was up. Raw material cost decline. Low interest outgo and inventory gains did help. Agri-business was sluggish but other businesses did well to help growth.

The share of raw material in total expenses declined to 55 per cent (63 per cent). Consumption of raw material, in actual terms, was Rs.587 crore (Rs.590 crore). High staff cost and other expenses could not prevent operating profit from growing up 7.7 per cent at Rs.612 crore while OPM moved up to 42.8 per cent (40.3 per cent).

ITC has been working on widening focus area following increased pressure on tobacco business. The company has four business groups namely, FMCG, hotels, paperboards, paper & packaging, and agri business in which it operates. FMCG continues to be the mainstay with cigarettes being a core activity. Revenue from cigarettes grew four per cent at Rs.2,291 crore and their share in total revenue increased to 76 per cent (74 per cent). This indicates that cigarette sales, in terms of volume, continue to grow despite the strong anti-smoking campaign. The government has already approved the ‘Tobacco Bill’ that bars smoking in public places, display of statutory warning etc. Heavy fiscal imposts year after year on tobacco and related products has choked sales growth. In ITC’s net profit cigarettes contribute 93 per cent (89 per cent).

ITC launched ‘Insignia’ in super premium category, ‘Wills Silk Cut’ another version of Wills Navy Cut, ‘Star’ variants of Scissors, Capstan and Bristol in the Bingos segment in ciagrettes. Under branded packaged foods it launched ‘Aashirvaad ReadyMeals’. In the confectionery segment ‘Minto’ and ‘Candyman’ launches were completed during the quarter.

In the lifestyle retailing business, it launched international quality eye-wear from ‘Valentino’ and ladies handbags from ‘Furla’. The introduction of ‘Clublife’ and ‘Classic’ range further strengthened ‘Wills Lifestyle’ product portfolio. Preparations are under way to launch couture range. These launches, together with the ‘Wills Sport’ range will complete the ‘Wills Lifestyle’ product portfolio. The greeting cards and gifts business has been doing well as its market share has improved 20 per cent. Besides extending market coverage of the ‘Expressions Paperkraft’ range of stationery products, the company also launched the ‘Classmates’ range of notebooks.

Revenues from hotel business grew 21.8 per cent at Rs.50 crore thanks to the newly opened ITC Sonar Bangla, Kolkata, as well as improved occupancies and room realisations. However, segment results were depressed due to depreciation and other operating charges in respect of ITC Sonar Bangla. The construction activity of its second hotel in Mumbai, ITC Grand Central, is in progress.

Paperboards, paper and packaging business revenue grew eight per cent at Rs.295.6 crore. Tuning up of existing paperboards and specialty paper facilities led to increased contribution from value-added products. These products now account for almost half the total paperboard sales.

The agri business performance remained lustreless, partly due to the transporters’ strike during April ’03 and oversupply situation in the global leaf tobacco industry. This had adverse impact on agri-exports. The appreciation in the rupee value against dollar added to its woes. As such agri-business revenue fell 23.4 per cent at Rs.331.3 crore. Yet leaf tobacco exports, in volume terms, grew by 10 per cent.

Recently, ITC’s IT division ITC Infotech secured a $54 million contract with Parametric Technology to help the US-based software company service its clients. It has forayed into e-trade with the launch of ‘e-choupal’ network. It has nearly 2,150 installations covering more than 1.3 million farmers in close to 12,000 villages in the states of Madhya Pradesh, Karnataka, Andhra Pradesh and Uttar Pradesh.