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ITC Net up 19.4% on Strong FMCG Show
The Economic Times - 18 May 2013

Cigarettes-to-hotels conglomerate ITC Ltd's quarterly profits grew by a fifth, helped by strong growth in its 11-year-old non-cigarette FMCG business, which turned profitable for the first time.

Kolakata-based ITC said on Friday net profit for the quarter ended March increased 19.4% to Rs 1,927.98 crore, meeting market expectations. Net sales touched Rs 8,180.3 crore, up 19.2% from the year-ago quarter.
ITC's non-cigarette FMCG business, which comprises packaged food and personal-care products, posted a maiden profit of 11.87 crore, prompting analysts to say it could break even for the full year this fiscal. The company was expecting profitability by 2016-17.

"ITC is expected to break even its non-cigarette FMCG business this fiscal, which will reduce draining of resources from the mainstream cigarette business," said Religare analyst Gaurang Kakkad. "However, a break-even may not add substantially to ITC's bottom line immediately, since margins are much less in personal care, unlike cigarettes."

The company said full year net sales for the non-cigarette FMCG business rose 26.4% to 6,982.75 crore, helping it reduce losses in the segment by more than half. The year saw the company focusing more on high-margin FMCG products, launch of multiple variants and more efficient use of its e-Choupal network.

ITC's full year net profit jumped 20.3% to 7,418.39 crore, while net sales grew 19.3% to 29,605.58 crore.

For the full year, net sales of the company's cigarette business grew 13.3% to 13,969.98 crore. The segment clocked 2.5% growth in volume, analysts said, adding they expect the business to post muted growth in volume this year. "The volume growth is expected to be muted for the first half of the fiscal after the company increased cigarette prices by a significant 9%-22% due to higher taxes, with some improvement in unit sales around the fourth quarter," said Kaustubh Pawaskar, an analyst with Sharekhan.

Acknowledging the challenges of the cigarette business, the company said, "With steep excise duty hikes, discriminatory VAT taxes by various states, rising illegal trade and heightened competitive intensity, the year ahead will indeed be challenging."

Although the yearly revenue of ITC's hotel business improved marginally, its profitability almost halved, which the company attributed to the high gestation cost associated with its latest 600-room premium luxury property, ITC Grand Chola, in Chennai. For the full year, the segment posted a profit of 137.65 crore on net revenue of 1,074.22 crore.

Revenue for ITC's paperboards, paper and packaging segment increased 9%, aided by higher volumes and product mix enrichment, but profitability was impacted due to a steep increase in price of inputs.

The conglomerate's agri-business saw a 13% jump in yearly profit to 731.28 crore, driven by better realisation and higher volumes, while revenue grew 26% to 7,200.73 crore.

ITC's board of directors recommended a dividend of 5.25 per share for the last fiscal, which will be paid on July 29. The total cash outflow in this regard will be 4,853.49 crore, which will include a dividend distribution tax of 705.03 crore, the company said.