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Net Turnover up 15%
24 Oct 2008

Click here for the Financial Results

Financial Results for the quarter ended 30th September, 2008

Net Turnover at Rs 3763 crores registered a growth of 15% driven by the continued scale up of the new FMCG businesses, which grew by 30%, higher Paperboard & Packaging revenues and strong performance by the Agri businesses.

The unprecedented increase in excise duties on non-filter cigarettes in the Union Budget 2008, steep increases in commodity prices and store rentals, the brand building costs of the new Personal Care portfolio and the significant investments in enhancing distribution capability combined to exert intense pressure on profitability during the quarter. Consequently, pre-tax profits at Rs. 1189 crores registered a subdued growth of 4.9% over the same period last year. Post tax profit at Rs. 803 crores grew by 4.1%. Earnings Per Share stood at Rs. 2.13 (SPLY Rs 2.05).

FMCG – Cigarettes

The extraordinary increase in the rates of excise duties on non-filter cigarettes, of the order of 140-390%, in the 2008 Union budget has made it unviable for legitimate manufacturers to make value propositions that will appeal to consumers in this segment. The Company had no option but to discontinue the manufacture and marketing of non-filter cigarettes in the Plain and Micro segments. In the immediate aftermath, consumers have moved to revenue-inefficient tobacco products, including smuggled and tax-evaded cigarettes with consequential steep decline in volumes for the highly taxed legitimate cigarette sector.

Despite these unfortunate turn of events, coming on the heels of a 30% increase in the incidence of taxation in the previous year, the Company’s relentless efforts to create value through international quality products; significant investments in technology and product design; and focused marketing and distribution have driven a sizeable shift of consumers to the filter segments and enabled the Company to sustain its leadership position in the cigarette industry under testing circumstances.

With organized industry substantially vacating the non-filter segment and the huge financial arbitrage resting in tax evasion, contraband and illegitimate players have mushroomed leading to an estimated trebling of illegal cigarette volumes. These low priced illegal cigarettes are a growing threat to Government revenue, market stability and the social objective of regulating tobacco. It is imperative that enforcement authorities check this phenomenon to preserve revenues that rightfully belong to the Government.

The industry has been subjected to further stress with the recent implementation of smoking ban in public places. This is clearly discriminatory against the cigarette industry as it will propel consumers to cheaper forms of non-smoking tobacco consumption. It is apprehended that the twin impact of mushrooming illegal trade and switching to cheaper tobacco products will have a significant adverse impact on the earnings of thousands of small, marginal farmers, especially in rain-fed areas where several attempts to grow alternative crops have failed to yield results.

The Company believes that the economic potential of tobacco can be maximised through moderation of taxes on tobacco, minimisation of discriminatory taxes between different classes of tobacco products and a regulatory framework that addresses the genuine concerns of all the stakeholders of the tobacco industry. The need is for a balanced agenda on tobacco, both fiscal and regulatory.

Branded Packaged Foods

The Branded Packaged Foods business registered a sales growth of 24% over the previous year despite the economic slowdown and increasing competitive pressures. The on-going inflationary pressures on input commodities along with the high fuel prices impacted the profitability of the business. Having acquired reasonable scale in a relatively short span of time, the business is progressively focusing on consolidating the portfolio in select categories, improving market servicing and driving supply chain efficiencies.

The ‘Bingo!’ product range got further enhanced with the recent launch of Finger Snack ‘Hatke Jhatke’, appropriately shaped like a wave, which takes Bingo!’s philosophy of ‘combinations’ forward with two exciting flavours - Funky Masala & Tomato Twist. Bingo!’s positioning as a youthful and innovative snack has got reinforced with a choice of flavours.

The product mix of the ‘Sunfeast’ range of biscuits witnessed continued enrichment driven by improving sales of value added products like Creams, Cookies etc. The excise relief accorded to low and mid-priced biscuits, consistent with the Government’s stated intention to promote the food processing industry, has given a fillip to the sector. It is hoped that the Government would respond to the industry’s representation favourably and extend the relief to the entire category.

In the Staples category, ‘Aashirvaad’ further built on its leadership position with revenues growing handsomely.

Confectionery sales grew significantly during the quarter, driven by ‘Eclairs’ and the extension of new segments like Lactos, which is being rolled out nationally. Similarly, the Ready-to-Eat (RTE) group continues to grow steadily, having made its first foray into the frozen foods segment in the US markets.

Lifestyle Retailing

The Lifestyle retailing business continued to enhance consumer franchise with a retail footprint, which now stands at 53 ‘Wills Lifestyle’ stores, an extensive network of ‘John Players’ exclusive brand outlets and expanded visibility at reputed large format stores and multi brand outlets.

Wills Lifestyle, embarking upon a major rejuvenation and brand makeover plan, has tied up with budding designers, Italian fabric makers and established designers to ensure cost optimisation for its premium range. The brand makeover is being reflected through new-look stores, launch of premium product lines, and tie-ups with leading design and management companies for world-class product presentation inside the stores. The business is focusing on women’s wear, a big growth opportunity. The business is mitigating high rental costs by re-negotiating, taking early positions in key malls and considering selective ownership of stores.

Personal Care Products

The business continued to register a healthy growth, improving its footprint amongst the national branded players. A range of personal care products under the brands ‘Fiama Di Wills’, ‘Vivel Di Wills’, ‘Vivel’ and ‘Superia’ addresses identified segments of the market with differentiated value benefits. The product portfolio got further enhanced with the launch of the ‘Superia’ range of anti-dandruff shampoos during the quarter.

‘Fiama Di Wills’ launched the national Fiama Di Wills Beautiful Face Hunt 2008 during the quarter to provide a unique opportunity to aspiring models across the country to represent India. ‘Fiama Di Wills’ with its unique selling proposition combining the goodness of nature and science to impart gentle and effective care continues to promote beauty with an array of product innovations.

Education & Stationery Products

The stationery business continued to be scaled up. The ‘Classmate’ range of notebooks, which is the country’s most widely distributed brand, is being marketed through school contact programmes, point of sale promotions and the Classmate Young Author Contest. The notebooks also communicate the company’s Triple Bottom Line message of being environment conscious.

The recently launched ‘Classmate Invento’ geometry boxes for school students are being extended across select markets.

Hotels

During the quarter, the hotels business posted a revenue growth of 10% to touch Rs. 228 crs. Despite the economic slowdown, de-growth in domestic air travel and lower growth in foreign traffic, the business registered a growth in occupancies and average room rates during the quarter. The business maintained its leadership in terms of operating efficiency as measured by the ratio of PBDIT to Net Income.

The recently launched ‘Kaya Kalp - The Royal Spa’ at ITC Mughal, Agra has been adjudged the winner of Tatler’s best spa by the London based Tatler Group. The Royal Spa, which is Asia’s largest, re-inforces the Company’s philosophy of providing premium experiences for the discerning guest. The spa captures the Mughal concept of paradise by the extensive use of running water, fountains, outdoor rain water showers, courts full of greenery open to the skies and opulent interiors.

Construction activity in respect of the super deluxe luxury hotel projects at Bangalore and Chennai is progressing satisfactorily as per project plans.

Paperboards, Specialty Papers & Packaging

The business maintained its market leadership with segment revenues increasing by 25%.

The quarter witnessed a continuing trend of steep inflation in the cost of fuel and major raw materials. Globally, pulp and waste paper prices spiraled, mainly due to the widening demand supply gap. In addition, the quarter saw exhorbitant increase in coal prices impacting the profitability of the business. The business succeeded in partially neutralising cost pressures by optimising opportunity buying and increasing sales realisations.

The new ‘Ozone bleached’ Pulp mill with an annual capacity of 1.22 lac tonnes is fast reaching optimum levels of capacity utilization. It is the first of its kind in the country to meet world-class environmental standards – a testimony to the Company’s commitment to the ‘triple bottom line’. This differentiated capability, apart from mitigating the impact of escalation in the price of hardwood pulp, will enable the business to expand the market for superior value added paper and paperboards on the strength of competitive cost and quality. The business has also quickly ramped up production from its newly commissioned 1 lac ton paper plant driving synergies and value capture based on strong forward linkages with the stationery business.

The Packaging and Printing business continued to provide strategic support to the Company’s cigarette and other FMCG businesses by ensuring security of supplies and sustaining international quality. The flexibles and carton lines, commissioned recently, are being scaled up to cater to the distinctive and innovative packaging requirements of the Company’s Branded Packaged Foods and Personal Care businesses. The business is driving substantial growth in external business forging linkages with the consumer electronics industry and other FMCG customers. The business has recently commissioned a 14 MW Wind Energy Project in the state of Tamil Nadu. The project, in line with the Company’s pursuit of investing in clean technologies, will result in cost savings and enhance ITC’s positive environmental footprint.

Agri Business

The business revenues grew by 17%, driven by an impressive growth in leaf tobacco exports.

The leaf tobacco crop from Andhra witnessed an unprecedented spurt in prices with rates increasing by more than 80% on the back of demand supply mismatch. Despite this challenging scenario, the business was able to maintain its export growth momentum profitably. The business continued to provide strategic sourcing support to the Company’s cigarette business by ensuring international quality supplies.

The e-Choupal model continues to improve farmer effectiveness through the establishment of an IT enabled virtual network providing access to quality and cost competitive agricultural inputs. The information and guidance provided on agricultural best practices is enabling farmers to improve productivity significantly.

Strategic Investment

During the quarter, ITC Infotech (USA), Inc, a subsidiary of ITC Infotech Limited, acquired Pyxis Solutions, a US based company specializing in quality assurance and testing. Consequently Pyxis became a wholly owned subsidiary of the Company. Pyxis brings on board differentiated capabilities of domain expertise in the Banking and Financial Services sector, superior methodologies and the strength of niche service offerings to an impressive roster of clients. The synergies between the two companies will provide opportunities to cross-sell by leveraging existing customer relationships of both the companies.

Contribution to Sustainable Development

In pursuit of its abiding commitment to create stakeholder value through service to society, the Company continued to make progress during the quarter in its social and environmental initiatives.

The Company deepened its imprint on the social sector by expanding to newer districts during the period. Social development projects are currently being progressed in 50 districts spread over the states of Andhra Pradesh, Bihar, Kerala, Karnataka, Maharashtra, Madhya Pradesh, Orissa, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal.

The pioneering social development projects include initiatives in watershed development, social farm and forestry programmes, soil & moisture conservation programmes designed to assist farmers in identified moisture-stressed districts, preservation of precious topsoil for agriculture and group irrigation projects. Towards improving the income earning capability of the farming community, sustainable agricultural practices were provided a major boost during the quarter with the promotion of organic fertiliser units through vermi-composting and NADEP technologies. Similarly, programme for genetic improvement of cattle was undertaken through artificial insemination to produce high-yielding crossbred progenies. Integrated animal husbandry services were provided during the quarter. These included addressing the needs of problem breeders, vaccines, feed additives and awareness drives. The initiative for the economic empowerment of women also continued apace with provision of gainful employment either in micro-enterprises or through self-employment with the support of income generation loans.

Intervention Areas Units of Measurement Sep 2008 (Cumulative Achievement)
Total Districts Covered Number 50
Social and Farm Forestry Hectare 84722
Soil and Moisture Conservation Programme Hectare 38476
Sustainable Agricultural Practices
    Organic Fertiliser Units
Number 12994
Sustainable Livelihood Initiative
    Cattle Development Centres
    Animal Husbandry Services
Number
Milch Animals
103
214538
Economic Employment of Women
    SHG Members
    Women Entrepreneurs
Persons
Persons
6715
16577
Primary Education
    Beneficiaries
Children 128000
Health and Sanitation
    Low cost Sanitary Units
Number 2565

The Company’s social sector footprint can be seen at a glance in the following chart:

The Board of Directors, at its meeting in Kolkata on 24th October 2008, approved the financial results for the quarter ended 30th September 2008, which are enclosed.

Click here for the Financial Results