ITC Chokes on Anti-tobacco Moves, Slow Consumption

Source from:  Daily News& Analysis 11/02/2015

Reeling under "unprecedented pressure" on the cigarette industry and sluggish demand environment in the FMCG industry, diversified conglomerate ITC posted a flat net profit at Rs 2,431.25 crore for the second quarter ended September 30. Lack of trading opportunities in agri-commodities and prolonged disruption in the instant noodles category compounded the woes.

The company had posted a net profit of Rs 2,425.16 crore during the same period last fiscal.

The topline declined 1.4% year on year to Rs 8,804.70 crore. Despite successive hikes in cigarette prices affected in the previous quarters, ITC reported just 1.5% YoY rise in revenues from cigarettes at 4317.18 crore, while profit from the business was up 3% at Rs 2968.94 crore.

The disappointing set of numbers pulled down the stock by as much as 4.3%, which closed at Rs 334.70 per share.

ITC's other FMCG businesses suffered due to sluggish demand environment, costs associated with new launches and also due to prolonged disruption in the instant noodles leading to poor consumer confidence.

Losses from FMCG businesses (excluding cigarettes) widened marginally to Rs 11.10 crore from Rs 10.31 crore in the year ago period while revenues grew 7% to Rs 2351.62 crore. Excluding instant noodles category, revenues would have grown by about 10%, ITC said.

"Results were impacted due to gestation costs of new categories like juices, gums and dairy, and higher brand investments to reassure consumers on the quality and safety of Yippee! noodles. In the noodles category, regulatory issues largely pertaining to a competitor's products impacted performance. The business launched a focused and integrated 360 degree communication campaign to reassure consumers. This intervention has aided a smart recovery in the consumer franchise in recent weeks," ITC said.

Revenue from agri-business, the second biggest contributor to its topline, dropped from Rs 2058.67 crore a year ago to Rs 1843.74 crore during the quarter due to lack of export trading and export opportunities in wheat, coffee and soya on poor price realisation.

Cheap imports from China and slowdown in cigarettes business pulled down bottomline from paper and boards business by 13.6% to Rs 209.25 crore while topline remained flat at Rs 1254.14 crore.

The hospitality segment improved performance with revenue growing 11% on revival in room occupancy and food and beverage revenue. Losses from the segment almost halved to Rs 5.54 crore from 9.58 crore a year ago.

ITC, however, is yet to take possession of Park Hyatt Hotel Goa, which was acquired through an auction in February by paying Rs 541 crore. While IFCI, which had sold the 250-key hotel, has already issued sale certificates to ITC, erstwhile promoter Blue Coast Hotel has got a stay order on possession notice, issued by the District Magistrate of Goa.

"The matter is pending before the Bombay High Court," ITC disclosed on Friday. Enditem