Dalal Street on Friday shrugged off tobacco, hotels and consumer products firm ITC’s double-digit growth in both revenues and profits for the quarter ended December on the back of robust sales across its FMCG and agri-business divisions and a spurt in other income. The Kolkata-based company on Friday reported net profit of Rs. 2,385 crore for the third quarter, 16.3% more than the year-ago period, while its revenues went up 13% year-on-year to Rs. 8,623 crore. But its stock price fell 0.26% to close at Rs. 324.85 on the Bombay Stock Exchange on Friday, faring slightly better than benchmark Sensex that went down by 0.95%.
Commenting on ITC results, Angel Broking research analyst V Srinivasan said, “While the performance was in line with estimates, segmental EBIT remained flat on account of increase in input costs.” The company termed its performance “commendable”, coming in an environment of deceleration in consumption expenditure, sustained high inflationary conditions and steep increase in taxes on cigarettes.
Ritwik Rai, FMCG analyst at Kotak Securities, agreed. “The results have come in ahead of our expectations on revenues as well as profits. In cigarettes, volume de-growth has softened since last quarter,” he said.
As for the muted response from investors, Rai said valuations of ITC are already stretched given its growth prospects. ITC stock has outperformed the market over the past one month ended January 16, rising 4.06% compared with the Sensex's 2.93% rise.
The maker of Bingo chips, Sunfeast pasta and Vivel soaps said its FMCG business outside of cigarettes has broken even operationally despite consumers slowing their discretionary spending. Gross revenues of the FMCG business, which accounts for 20% of ITC's revenues, went up 16.4% year-on-year to Rs. 2,083 crore in the October-December quarter. “The new FMCG businesses have registered healthy revenue growth driven by enhanced scale and improvement in operating leverage,” the firm said in a statement.
Hospitality Shows Muted Growth
In foods, it named Aashirvaad atta and Sunfeast Yippee! instant noodles as well as newer launches Sunfeast Delishus gourmet cookies and Candyman confectionery among brands that grew rapidly. ITC also sustained its leadership position in the cream biscuits segment, it said. The mainstay cigarette business, which accounts for 40% to ITC's total revenue, grew 12.6% to Rs. 7,664 crore, while the hospitality business, which is impacted by weak economic conditions and high levels of room inventory, showed muted growth. Amnish Aggarwal, senior vice president for institutional equities at PrabhudasLilladher, said the results were broadly as per their expectations with the cigarette business recording impressive growth in profits on 2% fall in sales volume. Profit on cigarette business increased 15.3% year-onyear to Rs. 5,218 crore in the third quarter even as cigarette prices increased more than 15% due to higher taxes. ITC’s other income shot up 59% to Rs. 391 crore in the quarter, while its paperboards, paper and packaging segment revenues rose 18.2%, driven by recent capacity additions. “Price and cost control actions partially mitigate the impact of steep hike in input prices,” the firm said.