ITC Q1 net profit drops 4.4 percent on excise duty hike on cigarettes, outlook positive

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The company said its net profit in Q1 of FY09 fell to Rs.748.67 crore from Rs.782.87 crore posted in a year-ago period (year-on-year or YoY decline of 4.37 percent).

However, during the same period, on a YoY basis, the company's gross income rose 13.54 percent (from Rs.5248.31 crore to Rs.5958.90 crore), while its net income rose 18.22 percent (from Rs.3395.40 crore to Rs.4014.05 crore).

In the FMCG segment, on a YoY basis, the company's net revenues from cigarettes business rose 6.22 percent (from Rs.1637.68 crore to Rs.1739.67 crore) while net revenues from sale of products like branded packaged foods (staples, biscuits, confectionery, snack foods and ready to eat foods), garments, educational and other stationery, matches, agarbattis and personal care products (like soaps, shampoos, conditioners and shower gels under the company's brands 'Fiama Di Wills,' 'Vivel Di Wills,' 'Superia' and 'Vivel') rose 27.50 percent (from Rs.542.24 crore to Rs.691.39 crore).

In other business segments such as hotels business, agriculture business, and paperboards, paper and packaging business, the company's net income, on YoY basis, rose 17.21 percent (from Rs.203.88 crore to Rs.238.97 crore), 32.29 percent (from Rs.1386.66 crore to Rs.1834.49 crore) and 26.56 percent (from Rs.478.76 crore to Rs.605.92 crore) respectively.

During Q1 of FY09, its total expenditure also surged 27.84 percent on YoY basis (from Rs.2267.30 crore to Rs.2898.69 crore).

Earnings per share or EPS fell from Rs.2.08 to Rs.1.99.

"The unprecedented increase in the rates of excise duties on non-filter cigarettes, of the order of 140-390 percent, in the 2008 Union budget has made it unviable for legitimate manufacturers to make value propositions that will appeal to consumers in this segment," a company release said.

In addition, brand building cost, cost of launching new personal care products, steep rise in commodity prices and hike in store rentals, ate into the margins, it said.

Looking ahead, ITC, which is 31.7 percent owned by British American Tobacco Plc., said it has earmarked over Rs.4000 crore on building hotels in Chennai and Kolkata as well as in Bangalore, Ahmedabad, Hyderabad and in NCR over the next two years.

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