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ITC Q1 net slips, sales up 18.4%
Economic Times - 31 Jul 2008

TOBACCO-to-hotels major ITC on Wednesday reported a 1% degrowth in net profit for the quarter ended June 30 to Rs 748.67 crore – down from Rs 782.87 crore reported in the same period last year.

But its net sales grew by 18.4% to Rs 3,899.70 crore – up from Rs 3,293.83 crore, driven by a 29% growth in revenues from the newer non-tobacco FMCG businesses such as packaged foods, lifestyle retailing and stationery.

Net profit recorded an underlying de-growth after adjusting for income tax refunds of Rs 29 crore received in the same quarter last year. In a statement issued after the board meeting, ITC officials attributed the quarterly performance to revenue growth from newer FMCG businesses, coupled with higher agri-business revenues and healthy increases in revenues from hotels, paperboards and packaging 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 launch costs of the additions to the new personal care portfolio and the continuing brand-building costs in the foods business exerted intense pressure on profitability during the quarter,” a company statement said.

The company’s pre-tax profit of Rs 1,113.95 crore was lower by 1.3% over the same quarter last year. Earnings per share for the year was lower at Rs 1.99.

The company’s cigarette business, which constitutes nearly half of ITC’s net revenue, was adversely hit following the unprecedented increase in the rates of excise duties on nonfilter cigarettes. The company had no option but to discontinue the manufacture and marketing of non-filter cigarettes in the plain and micro segments.

ITC’s paper business regained its growth trajectory with segment revenues improving by 27% during the quarter under review. “This was driven by a 30% growth of the premium value-added paperboard segment and robust performance of the packaging business,” the statement said.

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 at competitive prices. The flexibles and carton lines, commissioned at Hardwar and Chennai during the year 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 has become a key vendor partner to the consumer electronics industry from its Chennai facility.

The company’s revenues from agri-business rose by 32% over the last quarter.

The growth was supported by strong performance in soybean trading and record leaf tobacco exports, which registered a topline increase of 49%. The leaf tobacco crop from Andhra witnessed an unprecedented spurt in prices with rates increasing by more than 70% on the back of demand-supply mismatch.

Despite this challenging scenario, the business was able to maintain its export growth momentum profitably. While revenues from the company’s hotels division was up by 17%, riding on better occupancies and room rates and higher food and beverage sales, the stationery business recorded a sales growth of 25% over the previous year. Sales of the branded packaged foods business grew by 23% and that of the lifestyle retailing business by 15% during the quarter.

ITC to keep buying stakes in cos

ITC chairman YC Deveshwar on Wednesday said the tobacco-to-hotels FMCG major will continue to eye stakes in companies that are in similar lines of business. 

ITC already has stakes in hotels major EIH, Ballarpur Industries, VST Industries and Agrotech Foods. 

Speaking to reporters after the company’s 97th AGM here on Wednesday, Mr Deveshwar said: “We will invest in companies that are in the same businesses if there are prospects of generating value.” 

ITC has in the last two years invested roughly Rs 4,000 crore in fixed assets. “The return on these investments would not come immediately but over a period of time. Our plans are aggressive enough to be able to absorb all this cash into the future growth in the next few years,” he added. 

Incidentally, BAT representatives on ITC’s board namely JP Daly and HG Powell skipped the AGM on Wednesday. Their absence went unnoticed though with shareholders shooting queries on accounts, dividends and other issues. The overseas company holds about 32.02 % in ITC. 

Asked by reporters, the ITC chairman said one of them could not make it while the other had visa problems. He also declined to comment on Specified Undertaking of UTI’s (SUUTI) holdings of 12 % in ITC. 

On the company’s IT business, Mr Deveshwar reiterated that the company’s wholly owned IT services arm — ITC Infotech — is close to ac-quiring a US-based information technology firm. “We are in talks with the company and hope to clinch the deal shortly,” Mr Deveshwar said. He did not give any further details. 

Elaborating on the company’s tobacco business, the ITC chairman said owing to a restrictive regulatory environment, it is difficult to make the tobacco business grow.

“Since the cigarette business is operating in a restrictive regulatory regime, we felt the need to ‘create other legs of growth’. We, therefore, ventured into new areas like FMCG. The company would stick to the cigarette business since it was legal and provides resources required to enter new businesses in future,” he added.