ITC’s Net Turnover at Rs. 3166 crores posted a strong growth of 24% driven by the non-cigarette businesses which grew by 31% during the quarter and now account for 52% of the Company’s Net Turnover. The key drivers : the significant growth in the non-cigarette FMCG businesses, higher agri-business revenues and the continuing strong performance by the Hotels business.
The Company’s pre-tax profit
for the quarter ended 31st December 2006 recorded a growth of 26% over last year and crossed the Rs.1000 crore mark.
Post-tax profit at Rs. 717.4 crores grew by 23.2%. Earnings Per Share for the quarter stood at Rs. 1.91.
FMCG
Branded Packaged
Foods
The Company's Branded Packaged Foods
business continued to expand rapidly, with sales for the quarter
growing by 65% over last year.
The product mix continued to improve on
the back of enhanced sales of value added products like Creams,
Cookies etc. The 'Sunfeast'
range stood further expanded with the launch of
'Sunfeast Special'
biscuits in select markets in the
fast growing mid-price creams segment and the extension of mid-price
cookies to target markets.
In the Staples category,
'Aashirvaad Atta'
grew from strength to strength. The brand now commands an impressive
55% market share amongst national branded players.
Confectionery sales also recorded strong
growth driven
by Candyman-
'Eclairs'
and
'Cofitino'
in the toffee segment and the national roll out of
'Natkhat Mango'
(a hard-boiled candy). The quarter also saw the introduction of
'Maha Mango'
in a twist-wrap packaging format. Extension to target markets is
currently underway.
Product range in the Pasta segment was
further expanded with the launch of
'Sunfeast Benne Vita'
in 4 innovative variants. The products are currently
available in the major metros and are being extended to target
markets.
Lifestyle Retailing
The Lifestyle Retailing
business grew by an impressive 38% during the quarter. In the
premium segment, the business continued to expand consumer franchise
with strong sales growth across its portfolio, viz. the
'Classic' range of formal wear,
'Wills Sport' relaxed wear and
'Wills Clublife' evening wear.
The business continued to post significant improvements in several
operating indices such as average realisations, footfalls/conversion
and sell through rates. The 'Wills
Lifestyle' range is currently available in 39 large
format retail stores and 156 multi-brand outlets apart from the 39
exclusive 'Wills Lifestyle Stores'. The business will launch 15 new
stores in upcoming malls to enhance its retail footprint over the
next few months.
The brand's
association with high fashion and imagery stood reinforced with the
resounding success of the 'Wills Lifestyle
India Fashion Week' (WIFW). To bring alive the
association to consumers the business had introduced a high-end WIFW
special occasion wear created by leading Indian designers. These
product offerings have met with excellent response from discerning
consumers.
In the 'Youth'
segment, the distribution reach of 'John
Players' was further strengthened through the expansion
of the 'exclusive brand outlet' (EBO) network and increased presence
in key 'multi-brand outlets'. The number of EBOs in which the brand
is available doubled during the year with a trebling of the
associated retail space. The growth of the brand was fuelled by both
increased volumes and significantly improved realizations. The
business continued to effectively leverage the brand's association
with youth icon Hrithik Roshan with the successful introduction of
the superstar's 'Signature Line'. The business is in the process of
significantly scaling up retail presence primarily in high potential
catchment malls.
The business
continued to actively pursue opportunities in the
Exports arena establishing
long-term partnerships with high potential customers and achieved
robust growth in exports. The business has an exclusive
manufacturing arrangement with a state-of-the-art unit which has
positioned it to take full advantage of the emerging growth
opportunities in the exports segment.
Greeting, Gifting
& Stationery Business
The stationery business
continued to be scaled up with sales during the quarter increasing
by 27% over SPLY. 'Classmate' is
the most widely distributed notebook brand across the country and
has established itself as the quality leader in a short span of time
leveraging the superior brightness and smoothness of elemental
chlorine free (ECF) paper manufactured at the Company's Bhadrachalam
unit. To further strengthen the brand, the Classmate Connect
Programme comprising of 'Classmate Young
Author and Artist Contests' was conducted in 34 cities
with the participation of more than 2,00,000 students from 5000
schools. The contest has now become India's largest quest for young
writing and drawing talent and has emerged as a much-awaited event
on school campuses, across the country. The business also launched a
range of premium products under the 'Paperkraft'
line during the quarter.
In line with its
'Citizen First' philosophy, the Company contributes Re.1
for every notebook sold to its social responsibility initiatives.
Safety Matches
& Incense Sticks
In the Safety Matches
business, the Company's brands, including
'Aim' which is the largest selling brand of matches in
the country, continued to enjoy strong consumer preference,
resulting in enhanced market standing. The anticipated synergies
arising out of the recent acquisition of WIMCO Ltd. by the Company's
subsidiary, Russell Credit Ltd. are being progressively realised.
This is being increasingly reflected in the form of enhanced market
standing (combined volumes up 8% over SPLY), improved realisations,
higher share of value added products in overall sales, freight
optimisation and other supply chain efficiencies.
Market standing of
the Company's 'Mangaldeep' brand
of incense sticks (agarbattis) continued to be strengthened with
sales recording robust growth aided by the eight new SKUs introduced
so far during the year to cater to regional preferences.
In pursuance of its
abiding social commitment, the Company continues to partner with
small and medium enterprises to help them raise their quality and
process standards. Six agarbatti manufacturing units have received
ISO 9001-2000 certification till date, aided by the Company's
process and technical inputs. Sourcing from Khadi & Village
Industries Commission (KVIC) approved units continued during the
quarter. The business continued its collaboration with various NGOs
to provide vocational opportunities to rural youth and economically
disadvantaged women in keeping with the Company's commitment to the
'triple bottom line'.
FMCG-Cigarettes
The Company's single
minded focus on value creation for the consumer through significant
investments in product design, innovation, manufacturing technology,
quality, marketing and distribution enabled it to further strengthen
market standing and sustain its leadership position in the industry.
The business continues to focus on delivering superior value to
consumers through the introduction of modern format packaging in all
segments and design enhancement of leading brands based on
state-of-the-art technology. On the manufacturing front, investments
are being progressed towards enhancement of quality, variety and
productivity. .
Recent reports
suggest that policy makers are considering the possibility of States
extending VAT to cigarettes, to compensate for the loss in CST
revenues.
The tax incidence on
cigarettes at nearly 130% of the value of the product (ex Factory
Price less Excise Duty) makes it one of the highest taxed products
in the country. Despite the Tax Rental Agreement and the high share
of revenue received by the States from the Central Revenue Pool,
some States have been levying sales tax, under the garb of Entry Tax
in complete violation of the spirit of the Centre-State Agreement.
This apart, a host of local level levies like Octroi, Cess, Carriage
Tax, Local Area Development Tax, Toll Tax etc. are also imposed on
cigarettes.
When VAT was
introduced in India, the objective was to put in place a simplified,
rationalized system of taxation which would enable efficient revenue
collection, avoid the cascading effect on taxes and allow for
effective enforcement and compliance. Imposition of VAT on
cigarettes will, unfortunately, meet none of these objectives
efficiently and instead lead to large-scale contraband movement, and
shift consumption to cheaper, revenue inefficient forms of tobacco,
leading to loss of revenue and high administrative costs of
collection.
As observed in the
past, a steep increase in taxes would lead to a decline in cigarette
volumes and lead to a loss in excise revenues. The experience of
2001-02, when tax rates were increased by 15% in the Union Budget of
2001, bears testimony to this trend. Cigarette volumes fell by 13%
and for the first time in several years, excise revenue collections
actually declined. Conversely, in 1994, when the excise duty rate on
the Micro Plains segment was reduced from Rs.120 to Rs.60 per 1000
cigarettes, excise revenue from this segment increased 12-fold -
from Rs.7.5 crore to Rs.90 crore - within a span of 2 years.
Imposition of VAT on
cigarettes would provide a further fillip to contraband trade by
rendering their margins even more lucrative. It may be recalled that
contraband cigarettes from neighbouring countries flooded the Indian
market in periods of high taxes. The revenue loss to the Nation and
to the farmers, who faced a crop holiday, only added to the coffers
of these merchants of illegal trade. A survey of the market even
today would reflect the impossibility of an effective enforcement
system against such illegal trade.
Most of the value
addition in cigarettes (almost 90%) takes place during the
manufacturing process. Beyond the factory gate, out of the remaining
10%, nearly 7 to 8% comprise the retailer's margin, who by virtue of
their relatively smaller volumes are anyway out of the VAT net. This
implies that the entire administrative machinery will have to
concentrate only on the balance 2% of the value chain, which is
clearly inefficient and expensive.
Farmers cultivate
high quality tobacco like Flue Cured Virginia because of the high
returns it fetches, primarily because of the demand by cigarette
manufacturers. With high incidence of taxes, tobacco consumption
shifts to the lower end of the value chain like bidis and chewing
tobacco, which do not have the potential to remunerate farmers
adequately, making them significantly poorer. In addition, exports,
valued at Rs. 1400 crores currently, would suffer appreciably with
the cut back in production and quality. VAT on cigarettes therefore,
will neither help the farmers nor exports.
The single point,
specific tax levy on cigarettes has resulted in a stable, robust and
transparent tax system, which is easy to administer. Not
surprisingly, therefore, various eminent economists and
authoritative studies [Chelliah (1992), NIPFP (1994), Sarangi
(1999), Kelkar (2002, 2004), and Ministry of Health & Family Welfare
(2004)] have recommended a single point, specific duty structure for
a highly taxed product like cigarettes.
The Cigarette
industry continued to operate in a climate of rapidly escalating
restrictions on consumer/marketing freedoms. The impact of the
'Cigarettes and Other Tobacco Products (Prohibition of Advertisement
and Regulation of Trade and Commerce, Production, Supply and
Distribution) Act, 2003' (COTPA) will be rendered even more
stringent with the proposed requirement of printing pictorial health
warnings on tobacco product packs.
While the Company
welcomes fair and pragmatic laws on tobacco control and ensures
compliance with these in letter and spirit, it is engaged in drawing
the attention of policymakers and legislators to the inequitable
situation arising out of tobacco control legislation being enforced,
in effect, only on the cigarette industry.
Hotels
The hotels business
continued to record strong growth during the quarter with Segment
Revenues growing by 28% to touch Rs. 282 crores on the back of a 37%
growth in overall Revpar (revenue per available room) driven mainly
by WelcomHotel New Delhi, ITC Hotel Grand Maratha Sheraton & Towers,
ITC Hotel Windsor Sheraton & Towers and ITC Hotel Maurya Sheraton &
Towers. Segment results (PBIT) during the quarter touched Rs. 118
crores representing a growth of 55% over SPLY.
The product
upgradation programme at ITC Hotel Maurya Sheraton and Towers was
successfully completed during the quarter. A comprehensive
renovation and product upgradation programme is underway at various
other hotels of the ITC-Welcomgroup chain, in keeping with the
Company's strategy of maintaining the contemporariness of its
properties. Construction activity in respect of the new super-deluxe
luxury hotel at Bengaluru is also progressing as per project plans.
Substantial progress was also achieved in developing the project
plans and obtaining the requisite approvals for a new property at
Chennai.
Paperboards,
Specialty Paper & Packaging
Sales of value added
paperboards continued to record strong growth during the quarter,
further enriching the product mix. These products now constitute
appx. 55% of total paperboard sales. In the recycled segment, the
Kovai unit continued to benefit from the recent investments in a
captive power plant and a de-inking plant.
During the quarter,
the business made good progress with respect to the paperboard
capacity augmentation project, which seeks to add appx. 90,000 TPA
by 2008/09. The business is also progressing an investment towards
setting up capacity for manufacturing appx. 100,000 TPA of uncoated
paper including branded copier grades, to tap the emerging growth
opportunities and further consolidate its market standing. This
capacity is also expected to come on stream by 2008/09.
In fulfilment of its
commitment to a cleaner environment, the Company's Elemental
Chlorine Free (ECF) pulp mill continues to meet world-class
environmental standards. The business is making steady progress
towards doubling pulping capacity by the end of the next financial
year to achieve cost competitiveness and meet future growth
requirements. With increasing awareness of hygiene and safety among
Indian consumers, industries like foods and pharmaceuticals are
progressively switching to ECF pulp-based paperboard. The Company's
Plantation programme was further scaled up during the quarter. An
addition of nearly 27,000 hectares is expected during the year with
70% of such plantations being located in the command area of the
Company's mill at Sarapaka, AP. This is in line with the Company's
objective of achieving total plantation coverage of 100,000 hectares
by the end of the decade.
The Packaging and
Printing business made steady progress in respect of the capacity
expansion projects. The new facility in Uttaranchal which would add
manufacturing capacity both in the paperboard cartons and flexibles
segments, is expected to be commissioned shortly. The facility would
enable the business to service proximal markets in a cost-effective
and efficient manner and enhance external sales substantially.
Agri business
Agri business revenues
recorded a growth of 20% during the quarter driven primarily by
exports of leaf tobacco and increased levels of trade in soya,
non-basmati rice, chana and coffee. Segment Results (PBIT) touched
Rs. 22 crores representing a growth of 45% over last year.
On the sourcing
front, the business continued to leverage the e-Choupal network for
procuring high quality agri commodities at competitive prices. The
rural distribution initiative made good progress, nearly doubling
the channel throughput. On the rural retail front, 12
'Choupal Saagars' are now
operational in the 3 states of Madhya Pradesh, Maharashtra and Uttar
Pradesh while 8 more are expected to be launched by March/April
2007. These 'Choupal Saagars', in synergistic combination with the
e-Choupal network, would serve as the core infrastructure to support
ITC's rural distribution strategy.
The business is
progressing a pilot project for retailing fresh fruits and
vegetables. Three Cash & Carry Stores are currently operational at
Hyderabad, Pune & Chandigarh.
Cigarette leaf
tobacco exports recorded robust growth during the quarter on the
back of new business development initiatives and the strategy of
offering customised product and service offerings to key customers.
The plant upgradation project at the Anaparti facility in Andhra
Pradesh is expected to be completed shortly.
Contribution to
Sustainable Development
The Company continued
to make progress during the quarter in its social development
initiatives in line with its philosophy of creating stakeholder
value through serving society.
The social & farm
forestry programme today covers a total of 63,000 hectares under
pulpwood plantations, with the number of saplings planted totalling
254 million. This programme has created employment potential for
over 6 lakh marginal farmers and tribals. The soil & moisture
conservation programme, designed to assist farmers in identified
moisture-stressed districts, has created 1,302 water-harvesting
structures providing critical irrigation to 13,581 hectares. As part
of its policy to promote integrated water management solutions to
Indian farmers, the Company has taken the next crucial step towards
ensuring efficient usage of water through interventions aimed at
improving farm productivity, promoting group irrigation projects and
demonstrating the use of sprinkler sets. Sustainable agricultural
practices were further supported by the Company's promotion of
organic fertilisers through vermi-composting (5,174 units) and 'Nadep'
technology (2,376 units).
The sustainable
livelihoods initiative of the Company strives to create alternative
employment for surplus labour and decrease pressure on arable land
by promoting non-farm incomes. Among many such activities, special
emphasis is being given to improve livestock quality. Cattle
development centres under the Company's livestock development
programme currently reach out to over 1,500 villages, having
provided integrated animal husbandry services to about 70,000 milch
animals. Another key intervention is in the area of economic
empowerment of women. The ITC sponsored self-help micro-credit
groups have garnered nearly 11,000 members, all of whom directly
benefit from this intervention. Further, almost half the number of
members find additional employment in rural areas to supplement
their income from agriculture. Several initiatives are also underway
in the areas of Health & Sanitation and Primary education.
In the area of
environment, health and safety, ITC continues to raise the bar for
its operating units. Already a water-positive enterprise, the
Company also became 'carbon-positive' during 2005/06 and is making
rapid strides towards achieving 'zero solid waste' status.
The Company released
its third Sustainability Report in November 2006. This
Sustainability Report, has been prepared in accordance with G3, the
latest Revision of the Global Reporting Initiative guidelines and
has been independently assured by PricewaterhouseCoopers Pvt. Ltd.
The Report gives a comprehensive account of ITC's economic, social
and environmental performance.
The Board of
Directors, at its meeting in New Delhi on 31st January 2007,
approved the financial results for the quarter ended 31st December
2006, which are enclosed.
