ITC Q3 net profit beats street estimates, rises 17% to Rs 31 billion

Beyond Street estimates, ITC profit jumps 16.74%
Registers net gain of Rs 30.90 billion on an all-round profitability

By Avishek Rakshit
Kolkata, 20 January

Beating Street estimates, diversified conglomerate ITC Ltd posted a 16.74 per cent jump in its net profit at Rs 30.90 billion for the quarter ended December 31, 2017, with a total revenue, inclusive of other incomes, of Rs 105.79 billion. The net profit during the same quarter of the last fiscal year stood at Rs 26.47 billion, while the revenue was registered at Rs 142.58 billion.

In a statement, however, the company said that on account of restructuring of indirect taxes, the gross revenue and excise duty are not comparable.

On a comparable basis, the gross sales value, which includes GST, GST compensation cess and other former taxes under the pre-GST regime, stood at Rs 167.46 billion, representing a growth of 6.3 per cent on a year-on-year basis. 

Performances in ITC's non-cigarette segments and one-time gain of Rs 4.13 billion on account of entry tax in Tamil Nadu, which was written back in the quarter, contributed to the enhanced profit figure.

Revenue from the cigarettes business, which accounts for 46 per cent of the overall sales, stood at Rs 46.29 billion in the third quarter (Q3) of the ongoing fiscal year, against Rs 82.88 billion in the corresponding quarter of the 2016-17 fiscal year. 

According to Naveen Trivedi, research analyst with HDFC Securities, although it reflects a 44.14 per cent dip on an absolute comparable basis, adjusted against the new accounting standards, revenue from the cigarettes business grew 7-8 per cent, which met his expectations. Trivedi’s projection was based on the assumption that 96 per cent of last year's excise duty was for the cigarette business. 

Backed by price hikes following a cumulative tax increase of 19-20 per cent on cigarettes, the gross profit from this business increased by 7.81 per cent at Rs 32.70 billion against Rs 30.33 billion.

“ITC’s Q3 FY18 cigarette volumes decline of 5 per cent year-on-year on a flat base was comparatively soft, but at the same time bodes well from the Budget perspective," said Abneesh Roy, research analyst with Edelweiss Securities. 

Nevertheless, ITC noted that the business from cigarettes also had to contend with additional costs due to non-availability of additional duty surcharge credit on transition stocks, and the unanticipated revision of GST compensation cess, which impacted the pipeline stocks.

“The key monitorable in the short term would be the Budget, which we expect to be moderate, especially considering legal cigarettes account for only 11 per cent of the total tobacco consumption," Roy said.

Driven by the branded packaged foods, personal care and education and stationery product sales, the income from the non-cigarette FMCG business stood at Rs 28.72 billion in the October-December period of 2017 against Rs 25.69 billion in the same months of the 2016-17 fiscal year. 

The comparable growth after necessary adjustments in the accounting standard stood at 16.2 per cent during the quarter. Performance of the lifestyle retailing business, however, remained impacted due to the ongoing restructuring of retail and trade footprint. ITC earned a Rs 0.47 billion gross profit from this business vertical in Q3 of 2017-18, against the loss of Rs 0.20 billion in the corresponding quarter.

In the hotels line, despite the gestation costs of

ITC Grand Bharat and Welcom Hotel Coimbatore, increased average room rates and growth in the food and beverage revenue aided this segment’s revenue to grow by 10 per cent at Rs 4.04 billion on a comparable basis during the quarter, while profitability from this business unit increased by 29.94 per cent at Rs 0.55 billion.

However, the other two verticals -- the agri business and the paperboards, paper & packaging business witnessed slowdown.

Impacted by shortage of leaf tobacco and quality issues amidst currency volatility, in the agri business, the company registered a revenue of Rs 15.30 billion against the earning of Rs 16.72 billion in the period under review. The profitability also remained marginally muted at Rs 2.33 billion.

On the PPP business front, the revenue remained muted at Rs 12.80 billion against Rs 13.36 billion in the Q3 period of 2016-17 on account of prevalent subdued demand environment in the FMCG and legal cigarette industry. 

Surplus capacity in the domestic industry along with zero duty imports under Free Trade Agreement with ASEAN countries, and cheap imports from China also dampened sales. However, profitability from this business vertical jumped by 8.9 per cent at Rs 2.68 billion.

On account of projected decline in cigarette sales, analysts had previously estimated the company’s net profit to either remain flat or increase by a single digit.

The company’s scrip closed at Rs 273.85 apiece on the BSE, rising by 0.37 per cent at the end of the day’s trade.

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