ITC net misses St as cigarette volumes fall

Diversified business conglomerate ITC continued its dismal performance in the fourth quarter of fiscal 2015 with just 3.6% growth in net profit at Rs 2,361.18 crore as against analysts' estimates of Rs 2,600 crore.

The cigarettes-to-fast moving consumer goods (FMCG) major reported an almost flat on-year growth of 0.5% in operating revenues at Rs 9188.25 crore for the January-March period. The overall business, analysts said, was impacted by weak performance across the board, excluding non-cigarette FMCG business.

Elucidating the reasons for muted growth in revenue and profits, company management said that business was impacted due to continuing impact of the steep hike in taxation on cigarettes in addition to sluggish demand conditions in the FMCG industry and start-up costs of the juices category among others.

"The company also had to contend with start-up costs relating to the launch of new products and categories in the non-cigarette FMCG segment, input cost pressures in the paperboards, paper & packaging businesses and a weak pricing environment in the hotels business," it said in an earnings statement.

While cigarettes business grew 3.2% on-year, analysts said that despite series of price hikes, the decline in volumes stood at just 14-15% year on year. "This is not surprising and is in fact better than our expectations by around 6% -- we were working with a 20% on-year decline in cigarette volumes.

For the full year, cigarette segment reported profit margin expansion of 285 basis points on year, however the base year fiscal 2014, included write back of taxes and interests thereon of Rs 157.9 crore and Rs 34.8 crore, respectively. Adjusting for this, the cigarette margins have expanded by robust 387 basis points on-year for FY15," said a Reliance Securities analyst said in a company note.

Growth in ITC's non-cigarette FMCG business of around 11% on year was higher than the Street estimates of around 5%. Widening its offerings in this category, the company also launched its fruit beverage brand B Natural while also making significant investments in marketing the brand across the country. "While margins for the segment remained flat at 1.9% the same was up 11 basis points on year for the full year," analysts said.

On the hospitality front, the sector was adversely impacted by a weak pricing scenario due to excessive room inventory in key domestic markets and sluggish macroeconomic environment both in India and key source markets. "While there was marginal improvement in occupancy rate, average room rates remained under pressure in the backdrop of the addition of 8,000 rooms in the key markets of Delhi/National Capital Region, Mumbai, Bengaluru and Chennai over the last two years," the company said, adding that the segment revenue saw a modest increase of 4.8% during the year.

Down around 29% year on year, the agri-business segment was the major dampener though its profitability improved 426 basis points on-year. As per the company, the agri-business revenue was mainly impacted by decline in exports of leaf tobacco by around 11% year on year to 210 million/kg in the backdrop of a declining trend in cigarette consumption and record crop output. The paper and paperboards segment saw a revenue decline of around 5% year on year and was impacted by slowdown in the FMCG industry.