The diversified ITC Group has reported a 16% increase in quarterly profits, helped by higher cigarette prices and robust performance of its agri-business. The tobacco-to-hospitality conglomerate on Tuesday said net profit for first quarter ended June stood at Rs 2,186 crore compared with Rs 1,891 crore in the year-ago quarter. Net sales during the period increased by 25% from a year ago to Rs 9,164 crore. ITC's higher cigarette prices helped cushion the impact of lower cigarette sales volume.
The company's 10-12% increase in price of cigarettes during the quarter, a move that was aimed at shielding future demand in anticipation of a significant increase in taxes in the Budget, helped the Kolkata-based firm's flagship cigarette business post 18.7% jump in net sales at Rs 4,201 crore, and 21% growth in gross profit at about Rs 2,722 crore.
Edelweiss Securities had estimated a 3% drop in ITC's cigarette business volume for the quarter under review. "The outlook for cigarette sales volume this year is at a decline of around 3-5%, since ITC is expected to increase prices of cigarettes by another 15-16% to ensure margin improvement and EBIDTA growth of 15-16% in the cigarette business," said Abneesh Roy, associate director at Edelweiss Securities.
In its earnings release, ITC has noted the steep increase in excise duty on cigarettes - a 72% increase for sub-65 mm-length cigarettes -will exert pressure on volumes for the legal cigarette industry, which accounts for 12% of overall tobacco consumption in the country. The company said it undertook several initiatives during the quarter, such as pack modernisation and introduction of new variants for the cigarette business to consolidate its standing in the market.
ITC's non-cigarette FMCG business reported 11% growth in sales at Rs 1,935 crore and a net loss of Rs 16 crore on account of the more than Rs 900 crore additional investment over the year-ago quarter towards new launches and advertisement spent.
However, the maker of Aashirvaad atta, Bingo! and Engage deodorants said its non-cigarette FMCG business' performance was commendable since the overall demand was sluggish and there was deceleration in the sector's growth rate.
Roy of Edelweiss Securities said sales growth of ITC's FMCG business was the lowest in the last three years, matching the muted performance of industry peers. ITC's hotel business saw flat sales during the quarter and posted a loss of Rs 12 crore. The country's second largest hospitality player attributed it to additional depreciation charge of fixed assets of Rs 14 crore. It said the weak economic scenario and high levels of room inventory lead to relatively weak pricing.
The conglomerate, however, is going ahead with expansion of its hotels business. While the ITC Grand Bharat at Manesar, near Gurgaon, is expected to commence its operations shortly, the company has newer projects which are coming up in Kolkata and Hyderabad. It opened a new property in Bangalore during the quarter.
Quarterly sales in ITC's agri-business increased 51% from a year ago to Rs 3,296 crore. The robust performance was driven by trading opportunities in wheat, soy and coffee, the company said. Profit for agri-business was almost flat, which analysts said was due to volatility in commodity prices. Revenue from ITC's paperboards, paper and packaging business was up 11% at Rs 1,288 crore, aided by higher capacity utilisation of recent investments.