ITC beats estimates with 13.7% profit growth in Q2

The country’s largest cigarette maker’s net profit increased ₹3,697.18 crore in the three months ended 30 September ₹3,252.62 crore a year ago, the company said on Wednesday. Bloomberg poll of 16 analysts forecast quarterly profit ₹3,639 crores.

The company, which also sells Ashirwad wheat flour and Savlon soap, said its standalone revenue from operations grew 12% to 12%. ₹13,553.52 crore in the September quarter. From ₹12,103.75 crore a year ago, beating ₹12,992.70 crore revenue forecast by 13 analysts.

Talking about the September quarter data, the company said that overall, the quarter saw a massive improvement in sales across markets and channels. ITC pointed out that the reduction in the intensity of the epidemic and the rapid pace of vaccination have led to an improvement in the demand environment and consumer sentiment.

“However, significant disruptions in global supply chains and logistics coupled with unprecedented inflation in key input costs weighed on the operating environment,” it said.

Cigarette segment revenue up 10.2% ₹5,641.72 crore from the year-ago period, and the sales volume was close to pre-covid levels, growing by 9.5% compared to a year ago.

“After significant disruptions in the first quarter, cigarette volumes saw a smart recovery with exit volumes at pre-Covid levels,” the company said in its earnings release late Wednesday.

Abneesh Roy, Executive Director, Institutional Equities, Edelweiss Securities, said that the numbers are in line with our expectations.

Roy expects the company to report cigarette volumes reaching pre-Covid levels by October. “We will continue to monitor cigarette volume growth in the third and fourth quarters and the recommendation of the government panel to tax tobacco products,” he said.

The government has constituted an expert group headed by a senior health ministry official to prepare a comprehensive tax policy proposal covering all tobacco products from a public health perspective.

Surprisingly, ITC’s FMCG-other business, which includes packaged food and personal care products, posted a 2.9% jump in segment revenue. ₹4,036.41 crore. The company recorded a decline in demand for staples and convenience foods on a higher basis. However, the demand for such products including its blessing wheat flour is well above pre-covid levels.

The company pointed to higher-than-expected inflation in items such as edible oil, kraft paper, biaxially oriented polypropylene film, soap noodles and metallocene.

ITC said the sharp rise in input cost was offset through cost management practices, premiumization of products, prudent pricing actions and favorable business mix.

FMCG companies are reporting increased demand for packaged foods and staples as stay-at-home Indians bought more pulses and spices and less discretionary products like creams and hair colours.

However, demand is now returning to normal as consumers step out and start buying goods on the go.

“The company reported a sharp rebound in consumption outside the home on the back of improved mobility, despite an improvement in domestic consumption. Discretionary and out-of-home portfolios also reported sharp recovery on a sequential and year-on-year basis,” it added.

Meanwhile, the company’s hygiene portfolio saw “demand volatility” as the intensity of the pandemic eased. Its flagship Savlon hygiene brand saw a reduction in demand in line with a reduction in Covid cases. The closure of educational institutions is affecting education and stationery. products business, the company added.

The company’s hotel business posted sequential growth, with revenues returning to March quarter levels; Segment revenue grew 260% over a year ago to Rs 294.73 crore in the September quarter, albeit on a lower basis.