ITC Q2 Results: Profit Drops 20% On Lower Cigarette Sales
A packet of India Kings cigarette manufactured by ITC Ltd. (Photographer: Amit Bhargava/Bloomberg)

ITC Q2 Results: Profit Drops 20% On Lower Cigarette Sales

ITC Ltd.’s quarterly profit fell led by lower sales of cigarettes.

Net profit of the maker of Gold Flake cigarettes declined 20% year-on-year to Rs 3,232 crore in the quarter ended September, according to an exchange filing. That compares with the Rs 3,237-crore consensus estimate of analysts tracked by Bloomberg.

  • Revenue rose 1% year-on-year to Rs 11,977 crore. Analysts had pegged the metric at Rs 11,133 crore.

  • Operating profit stood at Rs 4,061 crore, down 11% from last year, while margin stood at 33.9% compared to 38.4% a year ago.

India’s consumer goods makers, despite being classified an essential service, faced supply-chain and labour issues as the lockdown forced workers to migrate back to hinterlands. Demand improved after the nation—fighting a rare recession—restarted most activities to boost sentiment and growth. But for ITC and its peers like Hindustan Unilever Ltd., Marico Ltd., Dabur India Ltd. and Godrej Consumer Products Ltd., full recovery will take some time.

Daily increase in Covid-19 cases during the quarter ended September pushed several stated to impose localised lockdowns, impacting the recovery momentum, particularly in July and August, ITC said in its statement. While increased mobility is aiding economic activity, the company is also "sharply focusing on cost reduction measures".

  • Cigarette segment’s revenue fell 3.8% year-on-year to Rs 5,121 crore.

  • Revenue of the remaining FMCG business rose 15.4% to Rs 3,795 crore.

  • Hotels revenue fell 80.7% to Rs 82 crore.

  • Agri-business revenue rose 12.7% to Rs 2,985 crore.

  • Paper-boards segment revenue declined 6.8% to Rs 1,459 crore.

Cigarettes

The decline came partly because of restricted hours of convenience stores during the quarter. Easing of restrictions from September has increased the ability of ITC to service markets and address emerging demand.

However, the company said, wide availability of smuggled cigarettes continues to remain a challenge for the legal industry which has witnessed significant reduction in volumes in recent years.

FMCG Others

While at-home consumption of essential products moderated as the lockdown restrictions were lifted, they still remain higher than pre-Covid levels.

ITC aligned its supply chains with e-commerce as consumers opted to shop online, increasing the contribution from the channel to the revenue to more than 5%. Sale of goods through the modern trade or hypercities and supermarkets grew at a slower pace as people preferred neighbourhood stores.

The company scaled up network of rural stockists to counter disruption in the wholesale channel. "This, along with sharp targeting of rural markets in certain states that witnessed reverse migration due to the pandemic, led to strong growth in rural sales.”

Hotels

Restrictions on tourism and travel hurt this business, but occupancy and revenue continue to improve on a month-on-month basis. Cost cuts saved about half of controllable cash fixed costs, the company said.

Paperboards, Paper And Packaging

Consumer offtake in pharma, homecare, packaged foods, personal care recovered to pre-Covid levels, while wedding cards, publication, and notebooks remain subdued. Exports grew.

Agri Business

Higher segment revenue was driven by trading opportunities in rice, mustard, coffee and higher wheat supplies for Aashirvaad atta.

Shares of ITC closed 0.5% lower on Friday ahead of its earnings announcement. That compares with a 1.2% rise in the benchmark Nifty 50 Index.

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