ITC net up 18% to Rs 1,891Cr but revenue growth below expectations; stock slumps

Consumer products and services firm ITC Ltd reported a 18 per cent increase in net profit to Rs 1,891 crore for the quarter ended June 30, 2013, over the year-ago period, meeting street estimates even as its net sales growth fell short of expectations. Sales rose to Rs 7,338.5 crore, up 10.3 per cent, against Rs 6,652 crore in the same period a year ago.

The firm also saw both revenues and net profit decline on a sequential basis compared with Q4 FY13.

The ITC scrip fell 4.5 per cent to close at Rs 358.8 a share on the BSE in a weak Mumbai market on Thursday. The cigarette maker, which has presence in FMCG products, hotels, paperboards and packaging, and agri-business, has the highest weightage in Sensex and led a 1.4 per cent decline in the 30-stock benchmark index on Thursday.

“Robust performance by agri-business was driven by wheat and leaf tobacco. Weak global macroeconomic environment and high levels of room inventory in key domestic markets continue to impact the performance of the companies in the hotels industry. The paperboards, paper and packaging segment’s revenues are up 9.9 per cent, helped by capacity addition. High input price levels (mainly of wood and coal) are affecting profitability,” the company said in a press statement.

On a year-on-year basis, revenues from cigarette business rose 7 per cent to Rs 3,537.4 crore from Rs 3,304.2 crore in Q1 FY13. The company's FMCG business’ (non-cigarette) revenues stood at Rs 1,744.7 crore, up 18.4 per cent, from Rs 1,473.1 crore in the year-ago period.

The agri-business’ revenues showed a 29.4 per cent growth at Rs 2,189 crore compared with Rs 1,691.4 crore. The hotels business’ revenues grew 7.5 per cent to Rs 250 crore against Rs 232.4 crore. The paperboard business grew around 10 per cent to Rs 1,163 crore.

Ritwik Rai, FMCG sector analyst at Kotak Securities, said, “ITC’s revenues came in below our expectations, primarily on account of weaker sales growth in the cigarette and other FMCG segments. Cigarette volume likely declined more than 2 per cent in the quarter, which led to a negative surprise.”

He said net sales growth of cigarettes, at 7.1 per cent (versus estimates of 10 per cent), represents a 20-quarter low while growth in other FMCG segment represents a 10-quarter low.

According to him, profit growth was a result of sharp curtailment in other expenditure as a percentage of sales and this is in line with its historical performance especially when cigarette sales growth slows down.

Rai said the results show growing stress on demand and pose a question on the extent of price inelasticity that cigarettes command. “Growth of the company’s key segments has moderated significantly and the likelihood of positive earnings surprises in the near-term is, in our assessment, low. We maintain a negative stance on the stock following the results,” he said.

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