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Business News/ Companies / People/  ITC Q1 net profit rises 3.6%, revenue falls 7.1%
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ITC Q1 net profit rises 3.6%, revenue falls 7.1%

Overall revenue drops to `8,587 crore as agri-business revenue falls 29.45%, cigarette revenue down 1.2%

Photo: Pradeep Gaur/MintPremium
Photo: Pradeep Gaur/Mint

New Delhi: ITC Ltd on Thursday reported a 3.6% rise in net profit to 2,265.44 crore in the quarter ended 30 June from a year ago, missing market expectations.

Revenue dropped 7.1% to 8,587.70 crore as agri-business revenue fell 29.45% and cigarette revenue fell 1.2%. However, revenue from non-cigarette business grew by 12.2% during the quarter.

The Kolkata-based company with interests in consumer packaged goods, cigarettes and hospitality was estimated to post a 6% rise in net profit to 2,330 crore, according to 27 analysts surveyed by Bloomberg.

ITC said income from the hotel business rose 15.7% in the quarter while paper business revenue fell 0.3%. The agri-business segment revenue was impacted by lower trading opportunities in wheat and soya, but profits rose 15.5% on a superior product mix and higher realizations, the company said.

“Performance during the quarter was subdued, reflecting the unprecedented pressure on cigarette industry volumes, sluggish demand conditions prevailing in the FMCG industry and lack of trading opportunities in wheat and soya," ITC said in a statement.

Cigarette revenue, which accounts for about 48% of the company’s total revenue, dipped to 4,149.6 crore, but its earnings before interest and tax (Ebit) rose 2.2% to 2,781 crore and margins spiked by 220 basis points to 67%. One basis point is one-hundredth of a percentage point.

According to ITC, the “punitive taxation regime" on legal cigarettes in India was worsened by two sharp increases in excise duty—in July 2014 and February 2015. “This includes a cumulative increase of 115% on filter cigarettes of ‘length not exceeding 65mm’, which has widened the price differential between legal and illegal cigarettes and made it extremely difficult for the legal cigarette industry to counter the unabated growth of illegal cigarettes in the country," it said.

According to ITC, its paperboards business was impacted by the continuing slowdown in the consumer packaged goods and cigarette industries, and by the reduction of import duty under various regional trade agreements.

Other income during the quarter jumped 34.3% to 315 crore from a year ago. A fall in raw material costs and the good performance of cigarette and agri-businesses at the Ebit-level boosted operating margins during the quarter.

The cost of materials consumed dropped 3.44% year-on-year to 2,569 crore; earnings before interest, tax, depreciation and amortization (Ebitda) rose 3.3% to 3,386 crore; and margins expanded by 400 basis points to 39.4% in the April-June quarter.

During the quarter, ITC’s personal-care business posted “robust revenue growth" on increased volumes and new launches in the personal wash and deodorant categories. “The business augmented its product portfolio with the launch of ‘Vivel Neem’ in the personal wash category and several variants in the skin care category under the ‘Vivel Cell Renew’ brand, aimed at addressing specific consumer needs. The recently acquired trademarks ‘Savlon’ and ‘Shower to Shower’ have been fully integrated with the existing operations of the business," the company said in its statement.

During the quarter, the company spent 1,515.43 crore as other expenses (personal care product launches, rollouts and promotions, along with food business brand-building costs), up from 1,484.48 crore in the year-ago quarter.

“Cigarette and agri-business declined in line with our estimates. Non-cigarette FMCG business has performed better, considering that the overall market was subdued and the market for instant noodles (which accounts for about 6% of segment revenue) shrunk by about 80% during the quarter. Agri-business was down because of unfavourable global markets. The paper business is linked to ITC’s other businesses. Margins were much better for cigarettes, while volumes dropped on price hikes. In the second half of the fiscal year, cigarette volume is expected to grow. Overall, cigarette volume expected to be down by around 10%, which is around 17% now. Growth in non-cigarette segment is expected to boost ITC revenue and profitability even in the coming quarters," said Abneesh Roy, associate director (institutional equities research), Edelweiss Securities Ltd.

A senior analyst with equity research firm PhilipCapital, who did not want to be named, said cigarette volumes were unlikely to pick up even in the next quarter. From the third quarter of this fiscal, cigarette volumes are likely to improve, the analyst added.

“ITC’s Q1 results were better than consensus estimates, especially on volumes. With most consumer companies reporting better-than-expected volumes, we believe ITC’s volumes also should improve into September and further into December. We believe most investors want to wait for cues from the government across regulation and taxation, which should come through in February 2016 before they start getting constructive on the name. We recommend a ‘Buy’, with a one-year price target of 400," said Sunita Sachdev, an analyst with UBS Securities India Pvt. Ltd.

ITC shares closed 3.90%, or 11.85, higher at 315.80 on BSE, while the benchmark index, the 30-share Sensex, was up 0.51%, or 141.92 points, at 27,705.35.

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Published: 30 Jul 2015, 01:36 PM IST
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