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ITC's FMCG biz weathers slowdown on cost cuts

Saturday, 24 May 2014 - 7:35am IST | Place: Kolkata | Agency: dna

Operating profit jumps three-and-a-half times on enhanced scale, supply-chain efficiencies and cost cuts, sales grow 13%

ITC Ltd's operating profit from its fast moving consumer goods (FMCG) business excluding cigarettes jumped three-and-a-half times to Rs 43 crore during the January-March quarter from Rs 11.87 crore in the corresponding period a year ago.

The profit was driven by enhanced scale, operating leverage, supply-chain efficiencies and strategic cost-management initiatives.

The diversified conglomerate's net profit grew 18% to Rs 2,278 crore in the January-March quarter, while sales rose 11.8% to Rs 9,145 crore.

ITC's FMCG business sans cigarettes had turned profitable in the corresponding quarter last year but revenues, which include its relatively new businesses like branded packaged foods businesses, personal care and lifestyle retailing, hasn't grown much since then, rising 13.7% in the reporting quarter to Rs 2,036 crore.

The revenue growth was impacted mainly due to marked slowdown in private consumption in real terms with categories involving higher discretionary spends or with relatively high penetration levels being hit the most, the company said while announcing its earnings.

While the cigarette business revenues at Rs 4,079 crore, in the March quarter were double the FMCG revenues, the latter is expected to take up a greater share of turnover and profit ahead as cigarette consumption drops and headroom to raise prices shrinks.

Revenues from cigarettes grew 12.6% on-year and EBIT rose 21%, helped mainly by price hikes as volumes are believed to have de-grown by 3%, analysts said.

The cigarette industry had to contend with a steep increase in excise duty for the second year in row along with discriminatory and punitive increases in value-added tax rates by some states.

The biscuits and confectionery categories enhanced scale of operations in the last fiscal despite significant deceleration in industry growth and volume declines in certain segments.

In recent months, the company launched 'Sunfeast Farmlite' range of health cookies, while its YiPPee! noodles grew nearly three times the industry average during the year, becoming the fastest growing brand in the market, ITC said.

It re-launched the potato chips range under the 'Bingo! Yumitos' sub-brand with a view to sharpening its positioning.

Retail presence of Wills Lifestyle expanded to 92 exclusive stores in 40 cities and more than 700 'shop-in-shops' in departmental stores and multi-brand outlets.

The hotel division continued to suffer from weak economic environment prevailing in major international source markets and in India, on the one hand and significant additions to room supplies in key Indian cities on the other, ITC said.

Despite this, segmental EBIT grew 47% at Rs 59.85 crore during the quarter while revenue rose modestly to Rs 320 crore from Rs 315 crore.

Agri business profits grew 14.2% during the quarter, driven by improved realisations and higher volumes.

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