Sluggish tobacco, FMCG biz keep ITC Q2 net flat at Rs 2,431 crore

ITC's September quarter (Q2) net profit remained flat at Rs 2,431 crore, while net sales declined marginally to Rs 8,805 crore. The diversified cigarettes-to-hotels group's largest contributing segment - cigarettes - got impacted by unprecedented pressure from growth in illegal trade, even as a sluggish demand environment persisted in FMCG and lack of trading opportunities affected the agri business. The company said its performance during the quarter also remained subdued with prolonged disruption in the instant noodles category due to regulatory challenges Stock Market Trading Tips

"ITC posted a disastrous set of numbers," said Ravi Shenoy, AVP (mid-caps research), Motilal Oswal Securities. He added, "We estimate that cigarette volumes have come off 13-14%. The extent of the drop should taper off in the second half as the base effect starts to come in. The FMCG business has posted a loss and any improvement here is key to driving valuations." 

The ITC scrip closed 4.3% lower at Rs 335 on the BSE on Friday. 

ITC will see board-level changes even as the maker of Aashirvaad atta, Vivel soap and Bingo snacks faces heat for its performance on multiple fronts. This has kicked off speculation about the impending leadership succession at the company. While P V Dhobale will retire in December, the board also accepted the premature retirement of Kurush Grant. Subsequently, the board has approved the appointment of Sanjiv Puri, currently president (FMCG), and Rajiv Tandon, currently CFO, as additional whole time directors Himanshu Tiwari Astrologer Blog

While at one point Grant was considered to be in the running for the top post at ITC, there has been speculation about Puri - who is in charge of a business driving over 60% of the company's revenues - being groomed to take on the task. ITC chairman Y C Deveshwar's term ends in 2017. 

With regard to the muted performance of the cigarettes business during the quarter due to taxation and regulatory headwinds, the company said, "Steep increases in excise duty on cigarettes in recent years have resulted in widening the differential in excise duty rates (on a per kg of tobacco basis) between cigarettes and other tobacco products from 29 times in 2005-06 to over 53 times currently. High incidence of taxation and a discriminatory regulatory regime on cigarettes in India have over the years led to a significant shift in tobacco consumption to lightly taxed or tax-evaded tobacco products like bidi, khaini, chewing tobacco, gutkha and illegal cigarettes, which presently constitute over 89% of total tobacco consumption in the country Indian stock market astrology prediction

In its non-cigarette FMCG segment, where revenue registered an underlying growth of approximately 10%, while most categories witnessed expansion in gross margin, segment results were impacted due to gestation costs of new categories such as juices, gums and dairy and higher brand investments in its noodles Yippee, an exercise undertaken to reassure consumers on the quality and safety of the brand. 

The company said the hospitality sector continues to be adversely impacted by a weak pricing scenario in the backdrop of excessive room inventory in key domestic markets and sluggish macroeconomic environment, both in India and key source markets. However, despite a challenging operating environment, the business recorded robust growth in revenue driven by improvement in room occupancy and strong growth in the food and beverage segment. The agri business was impacted by the lack of export opportunities in wheat, coffee and soya, while the paperboards, paper & packaging segment continued to be impacted by the slowdown in the FMCG and cigarette industry Commodity Market Astrology Tips