ITC Results Aided By Better Cigarette Mix

Source from:  Tobacco Reporter 01/20/2009

Jan 19, 2009-ITC's net turnover during the quarter to the end of December, at Rs38.330 billion, was increased by 11 per cent year on year. Higher Paperboard & Packaging revenues, an increase in the Group's Stationery and Personal Care businesses and a superior product mix in its cigarettes business combined to more than offset the impact of a sharp slowdown in the hotels business. 'The decline in hotel revenues consequent to the economic slowdown and the unfortunate terror strikes in Mumbai, the continuing impact of high commodity prices and store rentals, brand building costs of the new Personal Care portfolio and the significant investments in augmenting distribution infrastructure and systems combined to exert intense pressure on profitability during the quarter,' the company reported on its website. 'Consequently, pre-tax profits, at Rs.1331 crores, [Rs13.310 billion] registered a slower growth of 8.5 per cent over the same period last year. Post tax profit, which was flat in H1, grew by 8.7 per cent to Rs.903 crores [Rs9.030 billion]. Earnings per share stood at Rs2.40 [up from Rs2.21 year on year].' ITC said the 'extraordinary' increase of 140-390 per cent in the rates of excise duty on non-filter cigarettes in the 2008 Union budget, coming on the heels of a 30 per cent increase in the cigarette tax incidence the previous year, had driven the organized cigarette industry substantially to vacate this category. Despite these testing circumstances, the company had ensured a sizeable shift of consumers to the filter segments that enabled it to sustain its leadership in the cigarette industry. However, ITC warned that with the organized industry having substantially vacated the non-filter segment, 'contraband and domestic illegitimate players' had mushroomed and led to an estimated trebling of illegal cigarette volumes. 'These low priced tax-evaded illegal cigarettes are a growing threat to government revenue, market stability and the social objective of regulating tobacco,' the company said. 'It is imperative that enforcement authorities check this phenomenon to preserve revenues that rightfully belong to the government.' ITC complained also about how the tobacco industry had been subjected to further stress with the recent implementation of a smoking ban in public places. 'This is clearly discriminatory against the cigarette industry as it will propel consumers to cheaper forms of non-smoking tobacco consumption,' it said. 'It is apprehended that the twin impact of mushrooming illegal trade and switching to cheaper tobacco products will have a significant adverse impact on the earnings of thousands of small, marginal farmers, especially in rain-fed areas where several attempts to grow alternative crops have failed to yield results. 'The company believes that the economic potential of tobacco can be maximised through moderation of taxes on tobacco, minimisation of discriminatory taxes between different classes of tobacco products and a regulatory framework that addresses the genuine concerns of all the stakeholders of the tobacco industry. The need is for a balanced agenda on tobacco, both fiscal and regulatory.' Enditem