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Financial Results for the Quarter ended 30th June, 2014
Post-tax Profits up 15.6%
- Net Revenue : +24.9%
- Profit Before Tax : +18.2%
- Non-cigarette FMCG Segment registers revenue growth of 10.9% amidst deceleration in industry growth rate.
- Robust growth in Agri Business Revenue driven by trading opportunities in wheat, soya and coffee.
- Hospitality industry continues to be impacted by adverse demand-supply dynamics. Segment Results for the quarter include additional depreciation charge due to revision in useful life of fixed assets in accordance with Companies Act, 2013.
- Paperboards, Paper & Packaging Segment Revenue up 10.8% aided by higher capacity utilisation of recent investments.
- Increase in effective income tax rate for the Company mainly due to impact of provisions announced in the Union Budget 2014.
The Company recorded another strong performance during the quarter with robust growth in revenue and profits despite a challenging business environment. Net Revenue for the quarter grew by 24.9% to Rs. 9164.42 crores, driven by Agri Business and FMCG Segments. Profit Before Tax increased by 18.2% to Rs. 3265.67 crores while Net Profit at Rs. 2186.39 crores registered a growth of 15.6%. Earnings Per Share for the quarter stood at Rs. 2.75.
The Branded Packaged Foods Businesses posted healthy growth in revenues during the quarter, despite sluggish demand conditions and a marked deceleration in industry growth rate. In the Staples, Spices and Ready-to-Eat Foods Business, ‘Aashirvaad’ atta sustained its high growth trajectory consolidating its leadership position across markets. In the Bakery and Confectionery Foods Business, the recently launched ‘Sunfeast Farmlite’ range of cookies in the health segment continues to garner increasing consumer franchise. The Business also rebranded its offerings in the mid-price cream Biscuits segment under the ‘Sunfeast Bounce’ sub-brand for sharper positioning in the market. In the Snack Foods Business, ‘Bingo!’ registered robust growth driven by the finger snacks portfolio comprising the ‘Mad Angles’, ‘Tangles’, ‘TedheMedhe’ and ‘GalataMasti’ sub-brands. The 'Original Style' variants of Bingo! Yumitos potato chips, launched in Feb'14, gained good traction in launch markets. In the Instant Noodles category, ‘Sunfeast YiPPee!’ continued to record healthy growth leading to improvement in market standing.
During the quarter, the Personal Care Products Business expanded its portfolio in the Deodorant category with the addition of two new variants each for men and women, taking the total number of variants under the ‘Engage’ brand to 14. Engage has garnered impressive market standing in a relatively short span of time and continues to gain traction in the market.
The Education & Stationery Products Business consolidated its position as the leading and fastest growing player in the Indian Stationery market. During the quarter, the Business further expanded its presence in the popular segment of notebooks with the extension of the ‘Saathi’ brand in more markets.
While legal cigarettes account for less than 12% of overall tobacco consumption in the country, they contribute over 85% of the total tax revenue from the tobacco sector accruing to the exchequer.
High incidence of taxation and a discriminatory regulatory regime on cigarettes in India have, over the years, led to a significant shift in tobacco consumption to lightly taxed or tax evaded tobacco products like Bidi, Khaini, Chewing Tobacco and Gutkha. These cheaper and revenue inefficient products presently constitute over 88% of total tobacco consumption in the country. It is pertinent to note that tobacco consumption in the form of legal cigarettes declined from 86 million kg. in 1981-82 to 68 million kg. in 2013-14 even as total tobacco consumption in India increased from 406 million kg. in 1981-82 to 577 million kg. in 2013-14. Thus, while overall tobacco consumption is increasing in India, the share of legal cigarettes in overall tobacco consumption has progressively declined from 21% in 1981-82 to below 12% in 2013-14.
The steep increase in Excise Duty on cigarettes for the third year in succession as announced in the Union Budget 2014 along with further increase in Value Added Tax (VAT) on cigarettes by some States during the quarter will exertfurther pressure on legal industry volumes and sub-optimise the revenue potential from the tobacco sector. Further, the sharp increase of 72% in the Excise Duty rate applicable for filter cigarettes of ‘length not exceeding 65 mm’ will make it extremely difficult for the legitimate industry to counter the menace of illegal cigarettes which continues to grow unabated in the country.
The imposition of discriminatory and punitive VAT rates by some States provides an attractive tax arbitrage opportunity resulting in the growth of illegal cigarettes, thus depriving the State Governments of their legitimate revenue share. Punitive tax rates on cigarettes have proved detrimental to revenue collection leading to a multi-fold increase in illegal trade of cigarettes without any visible decrease in overall tobacco consumption. Steep increase in VAT rates lead to a sharp drop in legal cigarette sales even as illegal and duty evaded cigarettes gain significant traction leading to loss of potential tax revenues to the State exchequer.
The Company will continue to engage with the concerned authorities, both at the Central Government and State level, highlighting the need for moderation in tax rates on cigarettes to maximise the revenue potential from the tobacco sector and contain the growth of the illegal segment.
Despite the challenging operating environment as mentioned above, the Company’s unwavering focus on providing world-class products to consumers enabled it to sustain its leadership position in the industry. Consumer centricity, product innovation and quality processes have enabled the Business to deliver superior value. Several initiatives were launched during the quarter across the portfolio in terms of pack modernisation and introduction of new variants with a view to consolidating market standing.
The hospitality sector continued to be adversely impacted by the weak economic conditions and high levels of room inventory in key Indian cities leading to a relatively weak pricing scenario. Consequently, growth in Segment Revenues remained muted during the quarter. Segment Results of the Hotels Business include Rs. 14.3 cr. towards additional depreciation charge for the quarter due to revision in the useful life of fixed assets in accordance with the provisions of Schedule II to the Companies Act, 2013.
During the quarter, the Business commissioned ‘My Fortune Bengaluru’, a 115-room flagship property under the Fortune banner in the ‘upscale’ segment. Significant progress was made during the quarter towards construction of ITC Grand Bharat – a super luxury golf and spa resort - at the Classic Golf Resort, Manesar. The project is nearing completion with the hotel expected to commence operations shortly. Construction activity at the luxury hotel projects in Kolkata and Hyderabad is progressing satisfactorily.
Contribution to Sustainable Development
The Company’s Social Investments Programme aims to address the challenges arising out of poverty, environmental degradation and climate change through a range of activities with the overarching objective of creating sustainable sources of livelihood for stakeholders. The footprint of the Company’s Social Investments Programme has spread to 61 districts across the country and can be viewed at a glance in the following chart:
|Intervention Areas||Unit of Measurement||Cumulative till date |
|Total Districts Covered||Number||61|
|Social and Farm Forestry|
Soil and Moisture Conservation Programme
|Sustainable Agricultural Practices|
|Sustainable Livelihoods Initiative|
Cattle Development Centres
Animal Husbandry Services
Artificial Insemination doses (in lakhs)
|Economic Empowerment of Women|
Self Help Group Members
|Children ( in lakhs)||3.58|
|Health and Sanitation|
Low Cost Sanitary Units
The Board of Directors, at its meeting in Kolkata on 29th July 2014, approved the financial results for the quarter ended 30th June 2014, which are enclosed.
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