ITC's First-Quarter Profit Rises on Cigarette Prices

Source from:  By Subramaniam Sharma and Saikat Chatterjee July 27 (Bloomberg) 07/31/2007

ITC Ltd., India's biggest tobacco company, posted a more-than-expected 20 percent increase in first-quarter profit as a rise in cigarette prices offset the impact of a new sales tax. Net income rose to 7.83 billion rupees ($193 million) in the three months ended June 30, from 6.52 billion rupees a year earlier, the Kolkata-based company told the Bombay Stock Exchange. Profit beat the 7.1 billion rupee median estimate of five analysts surveyed by Bloomberg News. Sales gained 17 percent to 33.25 billion rupees, in line with analyst forecasts. ITC raised cigarette prices by about 20 percent in the quarter because of tax increases. In the past seven years, the company, 32 percent owned by British American Tobacco Plc, has diversified into products such as garments, greeting cards and incense to reduce its dependence on tobacco. ``The price hike in cigarettes seem to have adequately compensated for the increase in taxes,'' said Anand Shah, an analyst at Angel Broking Ltd. in Mumbai, who has a ``hold'' rating on the stock. ``Volume growth in cigarettes seems to be decent.'' Shares of ITC rose 5.2 rupees, or 3.1 percent, to 171.8 rupees at the 3:30 p.m. local time close. The stock, which has declined 2.4 percent since the start of the year, was the biggest gainer this week among the members of the benchmark Sensitive index. The Sensex, which has gained 11 percent this year, declined 3.4 percent to 15,234.57 today. ITC stock on July 25 gained the most in more than a year on speculation of a better-than-expected increase in cigarette sales. The shares rose 8.9 percent that day. Cigarette Sales ITC's cigarette sales rose 8.9 percent to 34.4 billion rupees in the quarter. Profit before tax and one-time gains or charges increased 15 percent to 9.39 billion rupees. India's 28 states started applying a 12.5 percent value- added tax on tobacco products and the federal government increased the excise tax in the first quarter. ITC says the changes are equivalent to a 33 percent tax increase. ``It appears that the cloud has somewhat lifted'' on the uncertainty regarding cigarette taxes, Chairman Yogesh Chandra Deveshwar told investors at the annual general meeting. ``Hopefully, with value-added tax having been introduced, there will be a much more level-playing field'' with other tobacco products. Indian Health Minister Anbumani Ramadoss said last week the government plans to make pictorial warnings on packets of tobacco products mandatory from Oct. 1. Restrictions The government also plans to set up a regulator to enforce tobacco restrictions, such as the ban on smoking in public places and tobacco sales near schools. Production of cigarettes in the country rose 5.2 percent to 113.85 billion sticks in the year ended March 31, according to the Tobacco Board of India. That's slower than the 6.1 percent gain in the previous year. In the past seven years, ITC, founded in 1910, has set up several new businesses, including stationery, matches, and rural retailing units. In March, the company started selling its Bingo! range of snack foods, such as potato chips. ITC is targeting a 25 percent share of India's branded snacks market within five years, Ravi Naware, divisional chief executive of foods, said on March 14. Snacks The market for branded snacks in India is estimated at 20 billion rupees and growing at 30 percent annually, according to Naware. In May, the company said it will set up a new unit for home and personal care products. ITC, which plans to invest $2 billion to build hotels, said revenue from hotels increased 11 percent to 2.21 billion rupees in the three months ended June 30. Profit before taxes and interest rose 12 percent to 642.6 million rupees. ITC plans to build hotels include three hotels in the southern Indian city of Bangalore, one in Chennai and one in the western city of Ahmedabad. ``We'll look at all the segments of the hotel business,'' Deveshwar said. He didn't give a timeframe in which the company plans to invest the money. Hotel chains are benefiting from more visitors to the country. The number of overseas tourists rose 12 percent to 2.3 million in the six months ended June 30, the government said. The company has more than 75 hotels in the country with about 5,500 rooms and is developing 27 more properties that will add about 3,000 rooms. Profit before taxes and interest rose to 642.6 million rupees from 575.5 million rupees. Revenue from its agricultural business, including trading of rice, wheat, coffee and leaf tobacco, rose 28 percent to 14.2 billion rupees in the quarter. Profit before taxes and interest rose 16 percent to 544.8 million rupees. To contact the reporters on this story: Subramaniam Sharma in New Delhi at ssharma@bloomberg.net ; Saikat Chatterjee in New Delhi at schatterjee4@bloomberg.net . Enditem