ITC reports second-quarter profit rises 3%, beats revenue estimates

NEW DELHI: ITC Ltd on Thursday reported a 3.08 per cent rise in standalone net profit for the September quarter, slightly below street expectations due to higher expenses during the reporting period.

The manufacturer of gold flake cigarettes and bingo chips had net profits of $Revenue for the three months ended September was Rs 5,078.34 crore, while $4,927 crore a year ago.

one Bloomberg Analyst poll estimates $Net profit was Rs 5,150 crore.

Operating income increased 16% $20,537.35 Crores from $17,705.08 crore a year ago. Revenue for the quarter beat Wall Street expectations $180.7 billion rupees.

What is dragging down domestic demand?

Factors such as the resurgence of food inflation and excessive rainfall this quarter combined to drag down domestic demand. The company said the quarter saw low demand, unusually heavy rains in some areas, high food inflation and a sharp rise in certain input costs (leaves, wood, etc.).

“While high-frequency indicators such as car sales, bank credit and personal loan growth, credit card transaction volumes, GST collections, merchandise export growth, manufacturing PMI and others point to a slowdown, the Indian economy continues to show Macroeconomic stability. The quarter also saw excess rainfall in August and September and a resurgence in food inflation, which caused CPI to hit a nine-month high,” the company said in its earnings report late Thursday.

These factors, coupled with inflationary trends in commodity prices, have weighed on consumer spending and the FMCG sector. Despite recent headwinds, the Indian economy remains “extremely resilient”, supported by the government’s multi-dimensional, purposeful policy interventions and strong efforts to build physical, digital, agricultural and rural infrastructure.

ITC reports earnings before interest, taxes, depreciation and amortization (Ebitda) $63.4 billion rupees, a year-on-year increase of 4.9%, slightly lower than the market consensus.

However, expectations for good crop yields, slower inflation expectations, improving agricultural terms of trade and a strong government push for public infrastructure and the rural sector all point to a pick-up in consumer demand, the ITC said.

In addition to running a large agricultural business, the company sells cigarettes, flour and operates hotels.

The company’s cigarette sales increased by 3.3% quarter-on-quarter this quarter, exceeding analysts’ expectations. Cigarette revenue increased by 6.8% year-on-year $8,177.27 Crores.

“The market position continues to be strengthened through a strategic portfolio and market intervention measures focused on competition zones and combating illegal trade,” the company said.

ITC mitigated the severe increase in tobacco leaf costs through cost management and calibrated pricing actions.

Meanwhile, the company’s FMCG business quarterly revenue rose 5.4% to $5,577.73 crore, with categories such as staples, biscuits, snacks, frozen snacks, dairy products, premium soaps, home care and agar agar driving the growth.

ITC sells brands like Bingo potato chips, Aashirvaad flour, Fiama soap and Sunfeast biscuits.

“Incessant rains and flooding in some parts of the country have adversely affected categories where discretionary consumption and out-of-home consumption are more prominent. Several major inputs (edible oils, wheat, maida, potatoes, etc.) were seen during the quarter Inflation headwinds,” the company said.

ITC continues to witness stiff competition in certain categories such as noodles, snacks, biscuits and soaps.

The company’s agriculture business reported a 47% rise in September quarter revenue, led by tobacco leaves and value-added agricultural products. “The value-added agricultural product portfolio, which includes coffee, fruits and vegetables, spices, etc., recorded strong growth during the quarter. The business continues to leverage the multi-dimensional capabilities of its state-of-the-art value-added spices processing facility at Guntur to expand exports,” the company said .

The company’s hospitality segment benefited from related demand from the food and beverage, retail and wedding sectors. Segment revenue increased by 12.1% year-on-year.

Analysts said the company’s revenue and sales exceeded market expectations.

“Another good news on revenue and volumes, revenue was ahead of our and street estimates; Ebitda/PAT were in line with our and street estimates.” Nuvama Institutional Equities Abneesh Roy said.