ITC results: Cigarettes, FMCG still a drag on earnings

ITC on Friday reported a decline in revenue and almost flat growth in net profit for the September quarter, with a drop in cigarette volume sales and slow consumer demand in the fast-moving consumer goods (FMCG) sector.

Analysts said there was a 16 per cent decline in cigarette volumes, in keeping with the trend in the earlier two quarters. Net profit rose 0.2 per cent to Rs 2,431 crore versus Rs 2,425 crore in the same quarter last year. Revenue fell 1.4 per cent to Rs 8,904 crore, compared to Rs 9,024 crore last year.

What supported the bottom line was the operating-level performance. This helped improve operating margins by two per cent over a year ago, to Rs 3,560 crore and the margin expanded by 130 basis points to 40 per cent, analysts said.

The performance reflected the unprecedented pressure on legal cigarette industry volumes, lack of trading opportunities in agricultural commodities and a sluggish demand environment in FMCG. Plus, prolonged disruption in the instant noodles category due to regulatory challenges.

Revenue from the crucial cigarettes portfolio, which gives ITC its lion’s share of profit, declined 1.5 per cent to Rs 4,317 crore for the quarter, compared to Rs 4,251 crore last year. However, the category's earnings before interest and tax (Ebit) improved three per cent to Rs 2,969 crore. Analysts attributed this to the price increases it did after the rise in taxes in the Union budget — the latter went up 18 per cent and ITC raised the price of cigarettes by around 15 per cent in March.

Revenue from the non-cigarette FMCG business — includes packaged foods, apparel, education and personal care products — rose seven per cent to Rs 2,352 crore, from Rs 2,196 crore during the same period last year. However, the segment continued to remain in the red, with Ebit declining 7.6 per cent to Rs 11.1 crore against Rs 10.3 crore a year ago.

“Segment revenue had an underlying growth of 10 per cent during the quarter. While most categories witnessed expansion in gross margin, driven by product-mix enrichment and stable input costs, the segment results were hit due to gestation costs of new categories — juices, gums and dairy, and higher brand investments," the company said.

Revenue from its hotels business rose 10.9 per cent to Rs 290 crore and the Ebit loss declined to Rs 5.5 crore from Rs 9.6 crore in the year-ago period. Revenue from the paper business was Rs 1,254 crore, against Rs 1,284 crore in the year-ago period, with Ebit down 13.6 per cent and margin contraction of 210 basis points.

Revenue from agribusiness declined almost 10 per cent, to Rs 1,844 crore against Rs 2,059 crore earlier, due to lack of export opportunities in wheat, coffee and soya, lower global prices and poorer quality due to unseasonal rain.

The ITC scrip closed at Rs 334.70, a fall of 4.3 per cent. The benchmark index closed at Rs 26,656.83, declining 0.7 per cent.