Informist, Thursday, May 22, 2025

By Avishek Rakshit

KOLKATA – Diversified conglomerate ITC Ltd. reported a near fourfold jump in its net profit for the March quarter at INR 195.6 billion, primarily owing to a one-time addition of profit from discontinued operations. The company's net profit from continuing operations, a true reflection of its profit from its existing business after the demerger of the hotels business, rose 1% on year to INR 48.7 billion. The profit from discontinued operations rose to INR 146.9 billion during the quarter from INR 1.8 billion a year ago.

The company's revenue in the March quarter grew by 9.4% on year to INR 184.9 billion, ahead of the Street's projection of INR 171.8 billion. The net profit from continuing operations, which is ITC's net profit from its cigarettes, non-cigarette consumer goods, agricultural trading, and paper and paperboard business, missed the Street's projection of INR 49.1 billion.

Demerger of the company's hotels business into ITC Hotels Ltd. became effective on Jan. 1. ITC's shareholding in ITC Hotels now stands at 39.9% and hence is an associate company of the conglomerate.

In a note to the company's accounts, ITC said that it has accounted for the demerger in its books of accounts as per the Indian Accounting Standards and generally accepted accounting principles in India. The excess of fair value of the net assets distributed to the shareholders of the company and addition to the value of investment in ITC Hotels over the carrying value of net assets and consequential adjustments of INR 634.4 million have been recognised as an exceptional gain in the company's profit and loss statement amounting to INR 151.6 billion.

The company's earnings before interest, tax, depreciation, and amortisation from its continuing operations rose 2.5% on year to INR 59.9 billion.

Segment Performance

The revenue from the cigarettes business, which accounted for 46% of its top line in the March quarter, rose 6% on year to nearly INR 84 billion, and the pre-tax profit increased 4% on year to INR 51.2 billion. Despite decades of diversification, cigarettes remain the main profit earner for ITC. The cigarettes division accounted for nearly 80% of the total pre-tax profit in Jan-Mar, in line with the usual trends over the years.

In a statement, ITC said that strategic portfolio mix and micro market interventions, with a focus on competitive belts and countering illicit trade, drove volume-led growth in the cigarettes business and reinforced its market standing. Differentiated and premium offerings continued to perform well, leveraging mainstream trademarks and innovation. Increased sales of premium cigarettes helped the company mitigate severe cost escalation in leaf tobacco to some extent.

ITC's revenue from the non-cigarette fast-moving consumer goods products rose 3.7% on year to INR 54.9 billion during the quarter under review. However, the pre-tax profit from the business fell 28% on year to INR 3.4 billion. Packaged flour, spices, snacks, frozen snacks, dairy, premium personal wash, homecare and incense sticks drove the top-line growth, but sales of notebooks were impacted by heightened competitive intensity with opportunistic play by local and regional brands.

Although the premium portfolio performed well during the quarter, the company faced severe inflationary pressures in procurement prices of edible oil, wheat, maida, potato, cocoa, packaging inputs, and others. Amid tepid demand conditions, ITC partially mitigated the cost surge through focused cost management initiatives, portfolio premiumisation and calibrated price increases.

ITC's top line from the strategic agricultural division rose 17.7% on year to INR 36.5 billion, and the pre-tax profit from the segment rose 26% on year to INR 2.6 billion. ITC exports commodities under this division and also procures raw materials for its consumer goods business, including cigarettes, from this division.

The top line in the agricultural business was driven by high leaf tobacco prices, exports of value-added agricultural products and rice. ITC said that its strong relationships with customers and agile execution continue to drive growth in leaf tobacco and value-added agricultural exports like coffee and spices.

After extensive product development and customer trials, shipments from the state-of-the-art facility to manufacture and export nicotine and nicotine derivative products have commenced in the Oct-Dec quarter and exports are expected to scale up in the current financial year, ITC said. Exports of nicotine and its derivatives are done through its subsidiary, ITC IndiVision Ltd.

The paper, paperboards and packaging division turned out to be another drag on the company's profits in Jan-Mar. Revenues rose 5.5% on year to INR 21.9 billion, but the pre-tax profit fell by over 31% to little over INR 2.0 billion. ITC said that it has to contend with sub-optimal domestic wood availability and quality issues, even as wood prices witnessed a sharp escalation, exacerbated by heavy cyclonic rainfall in core plantation areas and a spurt in demand from other wood-based industries.

The paper, paperboards and packaging division continues to focus on accelerating plantations in core areas, developing new areas, collaborating with other wood-based industries and implementing satellite-based plantation monitoring systems, among others, ITC said, adding that it faced increased competition from low-priced Chinese imports amid soft domestic demand conditions.

FY25 Performance, Outlook

During the year ended March, ITC reported a 10.3% increase in its revenues to INR 742.4 billion as against INR 672.9 billion in the previous year. Its net profit rose 72.3% on year to INR 352.0 billion, primarily owing to the adjustments made by the company on account of the demerger of the hotels business. The profit from continuing operations rose 0.9% on year to INR 200.9 billion.

ITC has declared a final dividend of INR 7.85 per share.

ITC said that the cumulative impact of inflationary pressures on household savings, along with muted wage growth over the last few years, continued to weigh on consumption expenditure, particularly in urban markets. The weakness in consumption was reflected in the muted volume growth in the consumer goods sector, where growth decelerated to 5.6% in FY25 compared to 10.8% in FY24. On the other hand, the services sector grew at 7.3% and the agricultural sector witnessed a moderate uptick at 4.6% in FY25 as compared to 2.7% in FY24.

The company expects India's macroeconomic variables to remain stable in FY26, with GDP growth expected in the range of 6.2% to 6.5%. Consumption expenditure is expected to pick up progressively, led by continued recovery in rural demand backed by a good monsoon, along with improvement in urban demand amidst lower inflation levels and tax cuts announced in the Budget, which is expected to boost disposable incomes. The cumulative impact of pick-up in government spending in the second half of FY25 and the frontloading of capital expenditure outlay in FY26, along with interest rate cuts and liquidity support from the Reserve Bank of India, would also support growth, ITC said.

Thursday, shares of ITC closed 1.6% down at INR 426.10 on the National Stock Exchange. End

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

Edited by Saji Geroge Titus

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