Non-Cigarette Biz Face Saver for ITC - The Economic Times
July 27, 2012
The non-cigarette FMCG business comprising packaged food, personal care, lifestyle retail and stationery products came to the rescue of the cigarette major ITC Ltd, that halved its divisional losses, boosting ITC's overall profitability and revenues in the quarter ended June 2012, compared with the same quarter last year.
ITC met Street expectations in the first quarter with 20% jump in net profit, despite a marginal impact in the volume of the cigarettes business, flat revenue growth of hotel and agri-businesses.
Analysts expect the non-cigarette FMCG business will become the main growth driver for ITC this year as cigarette volumes may remain subdued for another 1-2 quarters due to more than 12% hike in prices and the hotel business is unlikely to improve till the economic environment looks up.
ITC's net profit touched Rs.1602.14 crore (Rs.1332.72 crore) in the quarter ended June 30, 2012, with net sales growing by 15% at Rs.6652.21 crore (Rs.5767.47 crore). However, the stock market did not respond to the result with the ITC stock falling by 2.02% on the Bombay Stock Exchange to close at Rs.249.45 on Thursday.
ITC's cigarette business was impacted during the quarter due to the steep increases in excise duty and VAT. The Centre increased taxes on cigarette to 20-22% in the Budget, while the Uttar Pradesh government early this month increased VAT to 50% from 17.5%. However, the cigarette business still reported 15% jump in net sales at Rs.3304.24 crore during the quarter, while profit grew by 20% to 1899.81 crore.
"There has been a 1% decline in cigarette volume in the first quarter due to the price increase. We expect the cigarette volume to continue to fall by 1-2% in the next couple of quarters," says Kaustubh Pawaskar, research analyst at Sharekhan.
ITC said it has undertaken several initiatives for the cigarette business such as pack modernization, introduction of variants and limited edition packs under the Classic, Flake and Gold Flake Premium Filter brands. The business is also test marketing filter cigarettes in sub-65 mm length to tackle the plethora of illegal brands.
The biggest highlight of ITC's performance is the non-cigarette FMCG business. The business increased sales by 23% at Rs.1473.05 crore, while losses during the quarter almost halved to Rs. 38.84 crore. "The non-cigarette FMCG business grew more than 20% for the fourth consecutive quarter. The way it is reducing losses, we expect the business will breakeven in another two years," said Pawaskar. ITC said the branded packaged food business enhanced its market standing across categories. The sales of value-added and premium products grew at a faster pace.
The growth drivers were Aashirvaad packaged atta, Sunfeast Yippee! noodles, Sunfeast biscuits and Bingo! chips. During the quarter, ITC launched Kaju Badam Cookies in select markets.
However, the hotel business failed to recover in the quarter with flat sales at Rs.232.35 crore and almost 50% reduction in profitability at Rs. 26.23 crore.
However, this has not dithered ITC's investment plans in hotels. It has formed a new subsidiary to acquire a prime plot in Colombo on 99-years lease from the Sri Lankan government to develop a luxury property.
ITC's new super luxury property, ITC Grand Chola in Chennai, is complete and is awaiting statutory clearances prior to commercial launch, even as new projects are coming up in Kolkata and Gurgaon.
The paperboards, paper & packaging business reported 8% growth in sales to Rs. 1036.12 crore while profit went up by 17% to Rs.264.71 crore by enhancement in the product mix.
