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Informist, Thursday, Aug 1, 2024

 

--ITC Apr-Jun net profit 49.17 bln rupees vs 49.03 bln

--Analysts saw ITC Apr-Jun net profit 51.26 bln rupees

--ITC Apr-Jun revenue 182.20 bln rupees vs 169.95 bln

--ITC Apr-Jun net profit 49.17 bln rupees

--ITC Apr-Jun revenue 182.20 bln rupees 

 

By Avishek Rakshit

 

KOLKATA – A sharp escalation in raw material and other procurement costs, tepid demand conditions, and subdued performance of the paper and paperboards business led ITC Ltd's net profit to remain flat year on year and miss the Street's expectation. The company, however, outperformed the revenue growth estimates of sector analysts.

 

The country’s largest cigarettes company reported a nominal 0.3% year-on-year growth in its net profit at 49.2 bln rupees for Apr-Jun, as against the Street's expectation of 51.3 bln rupees. The revenue, however, rose by 7.2% year on year at 182.2 bln rupees and outdid the Street's projection of 169.3 bln rupees. Sequentially, the net profit fell by 2.1%, while revenue rose by 2.6%.

 

At the same time, ITC's raw material costs surged 9.8% year on year at 54.1 bln rupees, and purchase of stock-in-trade, which refers to the cost of finished goods to make the final product, surged by a whopping 70.2% year on year at 31.2 bln rupees. Although the company benefited partially from lower costs of inventory of finished goods, stock-in-trade, work-in-progress, and intermediates, it wasn't enough to mitigate the cost surge. The company's total costs escalated by 10.8% year on year to 123.7 bln rupees, which upset its gains from revenue growth.

 

The cigarettes business, which usually accounts for 39% of its annual revenues but contributes 78% of the net profit, saw an uptick of 6.1% in revenue at 79.2 bln rupees and a 6.5% growth in its pre-tax profit at 49.6 bln rupees on a year-on-year basis. In a statement, ITC said that differentiated variants and the premium range of cigarettes continued to perform well, and a sequential improvement in sales was witnessed in the lower-priced segment. ITC continued to focus on premiumising its cigarettes portfolio, which drove the revenue growth.

 

ITC introduced new cigarettes like Gold Flake Social Super Slims, American Club Super Slims, Bristol Maja Mix, Gold Flake Tango Mix, Flight, and others to maintain its hold in the legal cigarettes industry in the country. It continued to regain the market share lost to illicit trade due to stability in cigarette prices, and introducing new cigarettes into the segment.

 

However, leaf tobacco prices escalated sharply and, as a result, cigarette making costs shot up. Although ITC did not detail on how it impacted its raw material costs, an industry official from the tobacco industry said that leaf tobacco prices were up by 20% in the past few months on account of crop failure in Mysore, and rising global demand. Procurement costs of tobacco leaf–-the primary raw material for cigarettes--is expected to remain high, the industry official said.

 

In its statement, ITC said that cost increase in cigarettes were largely mitigated through improved sales mix, strategic cost management and calibrated pricing. However, the industry official said that tobacco is a controlled commodity, and hence hedging is not possible, which may have led ITC to stock up leaf tobacco inventory. 

 

For non-cigarette consumer goods portfolio, comprising various products like personal care, edible products, and others, the revenue growth was 6.3% year on year at 54.9 bln rupees. The pre-tax profit from this business grew by 10.4% year on year at 4.8 bln rupees, and the earnings before interest, taxes, depreciation, and amortisaton margins expanded marginally by 25 basis points to 11.3%.

 

In its statement, ITC said that product categories like staples, snacks, dairy, personal wash, fragrances, homecare, and incense sticks drove the growth in this segment, but heatwave conditions across the country adversely impacted categories with higher salience of discretionary and out-of-home consumption.

 

Competitive intensity remained high in certain categories like biscuits, snacks, noodles, popular soaps, education, and stationery products. While commodity prices were largely stable during the quarter compared to the base period, certain items such as sugar, potato, chocolate cream, and edible oil witnessed sequential uptick in prices, ITC said in the statement.

 

Modern sales channels like large grocery outlets, and e-commerce witnessed robust growth on the back of sharp execution of channel-specific business plans, collaborations, format-based assortments, and category-specific sell-out strategies, ITC said.

 

In its hotels business, which is set to be demerged shortly, revenue increased by 10.9% at 66.5 bln rupees despite fewer wedding dates, extreme heatwave conditions, and the General Election impacting domestic travel and out-of-home dining. Pre-tax profit grew 11.5% to 1.5 bln rupees. ITC opened 32 new hotels in the past 24 months and 28 managed properties are expected to be opened by June 2026.

 

While the prevalent high leaf tobacco prices impacted ITC's cigarettes business leading to a surge in costs, as highlighted earlier, the same benefitted ITC's agricultural trading division in terms of revenue growth. It is because, among other commodities, ITC also exports leaf tobacco. Revenue from this segment shot up 22.2% year on year to 69.7 bln rupees. However, the net profit remained flat at 3.6 bln rupees as ITC wasn't able to make much profit from leaf tobacco exports, which are already at escalated price levels, and the government's restriction on wheat exports limited its scope of business. High leaf tobacco prices mostly contributed to the revenue growth in this segment, apart from coffee and spices.

 

However, it was the paper and paperboards division which took a toll on ITC's profit growth. Revenue from this segment declined 6.8% year on year at 19.8 bln rupees and the pre-tax profit fell by 44.7% year on year at 2.6 bln rupees. Cheaper Chinese supplies in global markets, including India, muted domestic demand conditions, and a surge in wood prices were the prime factors that contributed to the segment's dismal performance, according to ITC.

 

ITC reported a marginal 0.7% year-on-year growth in its earnings before interest, taxes, depreciation, and amortisation at nearly 63 bln rupees, as against the Street’s expectation of 65.2 bln rupees.

 

Shares of ITC closed 0.3% lower at 493.7 rupees on the National Stock Exchange. End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Deepshikha Bhardwaj

 

 

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