ITC beats street buzz, Q2 net up 10.5% on tobacco biz

Beating street estimates, ITC Ltd posted an increase of 10.49% in its net profit at Rs 2500.03 crore for the quarter ended September 30, 2016 even as the company managed higher profitability from its cigarette business, while the loss from the other FMCG segment narrowed down.

In the corresponding quarter of the last fiscal year, the company had posted a net profit of Rs 2262.50 crore on a standalone basis. For the period under review, ITC’s revenue from operations surged by 7.8% at Rs 13,491.37 crore as against the earning of Rs 12,511.76 crore.

Analysts expected a rise of 5-7% in its top line while the bottom line was thought to get impacted due to sluggish cigarette sales.

The company’s revenue from cigarettes rose by 7.1% at Rs 8,528.47 crore while the gross profit rose by 8.3% at Rs 3,216.88 crore.

In a statement, the company said that the operating environment for the legal cigarette industry in India was rendered even more challenging in the wake of a further increase of 10% in Excise Duty announced in the Union Budget 2016 and introduction of the new 85% graphic health warnings (GHW) on cigarette packages.

The net revenue from the Others FMCG business, which comprises of the dairy & beverages business, edibles and ready to eat meals, rose by a whopping 13.3% at Rs 2,671.66 crore from the former Rs 2,357.98 crore amidst weak demand conditions.

The company credited the improvement in the sales to enhanced scale and enriched mix offsetting the impact of a significant increase in input cost, continuing investment in brand building and consumer & trade promotion activities.

In the quarter under review, the company’s dairy and beverages business vertical scaled up sales of the B Natural range of juices and also launched two blends of gourmet coffee under the Sunbean brand which is currently sold through select ITC Hotels.

Also, the Others FMCG business expanded the footprint of Fabelle Chocolate Boutiques to ITC Sonar, Kolkata, ITC Maurya, New Delhi and ITC Grand Chola, Chennai in addition to the one at ITC Gardenia launched earlier.

“Plans are on the anvil to extend the luxury chocolate boutiques to select ITC Hotels in the ensuing months," ITC said in a statement.

However, the business continued to be under stress in its profitability as the company posted a net loss of Rs 3.26 crore as against the loss of Rs 11.10

The hotels business performed well doing a turnaround in its bottom line. Posting a revenue increase of 2.5% at Rs 297.34 crore in the three months under review as compared to the earning of Rs 290.05 crore in the July-September period of 2015, this vertical entered the green after posting a profit of Rs 0.65 crore from the loss of Rs 5.54 crore in the year-ago period.

In the agri business vertical, which provides strategic sourcing support to the company's cigarette business and leverages its rural linkages to source raw materials for the foods and packaged goods business, the company posted a flattish top line and bottom line at 1.9% and 1.03% respectively.