The FMCG sector has been buzzing in the past few months when rest of the market has been subdued. While the Sensex lay low in march, the BSE FMCG index gave positive returns with ITC being the top performer up over 9%. FMCG has always been a safe bet in falling markets for investors. Since they are unlikely to fall in a weak market and are good defensive plays.

ITC has been in limelight since last few months. 

ROBUST THIRD QTR RESULTS

Its third quarter numbers were inline with street expectations. The net sales for the company stood at Rs 34,580 million for the Q3FY08 as against the net sales of Rs 31,656 million for the Q3FY07 posting the growth rate of 10%. The company reported the operating profit of Rs 11,997 million for the Q3FY08 versus the operating profit of Rs 10,828 million for the Q3FY07 with the growth rate of 11%. The operating profit margin for the company stood at 34.69% for the Q3FY08 versus the operating profit margin of 34.21% for the Q3FY07. The EBITDA for the company has gone up by 16% to Rs 13,371 million for the Q3FY08 as against the EBITDA of Rs 11,526 million for the Q3FY07.

The EBITDA margin showed strong growth standing at 38.67% for the Q3FY08 as against the EBITDA margin of 36.41% for the Q3FY07. The net profit for the company stood at Rs 8,307 million for the Q3FY08 versus the net profit of Rs 7,174 million for the Q3FY07 growing by 16%. The net profit margin also strengthened to 24.02% for the Q3FY08 versus the net profit margin of 22.66% for the Q3FY07.

The company has a dominant position in the cigarette market. In the third quarter cigarettes segment volumes remained more or less intact, just a marginal 1% against a higher fall expected by the analysts despite increase in the indirect taxes on cigarettes in FY2008. The tax incidence increased by 29% per pack over Q3FY2007. Thus the indirect taxes account for about 132% of the ex-factory price, net of taxes. The withdrawal of trade tax in Uttar Pradesh from January 1, 2008 concurrent to implementation of value added tax also augurs well for cigarette sales. Analysts expect ITC's cigarette sales volumes to become marginally positive for the last quarter of the year and expect the volumes to catch up the normal growth rate of 5-7% in FY2009. For the quarter, the gross revenues from the cigarette sales grew by 7.6% to Rs3,529.4 crore, whereas the PBIT for the segment grew by a hefty 16% yoy to Rs961.1 crore as the PBIT margins improved by 197 basis points to 27.2%.

Non-cigarette FMCG business .Branded packaged foods The company's branded packaged foods business continued to expand rapidly with the sales for the quarter growing by 60% over the last year. .Bingo. (a range of potato chips and finger snacks) continued its strong growth traction with wider distribution across target markets.

The product mix of biscuits improved further with an increase in the sales of high-value variants. The company also launched Coconut and Nice biscuit variants during the quarter. ITC has further added 'Sunfeast Bennevita Flaxseed' biscuits in the health category. Overall, the biscuit category sales increased by 58% during the quarter. .

Staples Aashirvaad Atta, witnessed growth of 39% revenue growth. The recently launched .Aashirvaad MP Chakki Atta. has registered a good consumer response. Leveraging the Aashirvaad brand, ITC is scaling up volumes in Aashiraad Select Organic spices.

Confectionary category recorded robust sales with a growth of 38% during the period. In this category the portfolio expanded with the launch of Mint-O Blue Singles and Natkhat Go-wawa..

Lifestyle retailing business showed an impressive growth of 26% yoy during the quarter. The business continued to increase its retail footprint with the addition of two new stores in this quarter, taking the total count to 44 stores.

Personal care In Q2YF2008, ITC forayed the personal care segment by launching .Fiama Di Wills a premium range of shampoos and shower gels. This was further expanded with the launch of Fiama Di Wills. soaps. The Fiama Di Wills. products are now available in metros and cities with population above 10 lakh. The .Superia. range of soaps and shampoos continues to penetrate the mass market and the products are now extended to Chattisgarh and Madhya Pradesh post its initial launch in Orissa and Andhra Pradesh.

The non-cigarette FMCG business of ITC showed a consistent growth in terms of revenues, which for the quarter rose by 50.1% yoy to Rs 655.4 crore. The PBIT margin for the segment declined on a quarter-on-quarter (q-o-q) basis by 360 basis points primarily on account of spends on newly launched personal care brands.

The segment as a whole is expected to continue its strong growth in the top line as ITC expands the portfolio of offerings and strengthens distribution of existing products. Hotels The hotel segment registered a steady revenue growth of 11.4% yoy for the quarter driven by improved revenue per available room and stellar performance of the food and breverages segment. The segment continued to maintain a healthy PBIT margin that improved by 187 basis points to 43.9%. The construction of super deluxe luxury hotels at Bengaluru (expected to be commissioned by December 2008) and Chennai (to be commissioned in 15-18 month period) is on track.

Paperboards, specialty paper and packaging revenues for the business grew by 11.2% yoy with a 14% improvement in volumes of the value-added portfolio of paper and paperboards and a strong performance of the packaging business. The PBIT grew 13.6% for the quarter, while the PBIT margin expanded by 42 basis points. Also the paper machine with a capacity of 100,000 tonne per annum is slated to be operational in FY2009. Agri-business

The agri-business revenues for the quarter declined by 9.4% yoy to Rs 662.9 crore, due to ban on the export of non-basmati rice. The profits for the segment however grew by a good 28.1% as it achieved record exports for the high-margin leaf tobacco. PBIT margin improved 123 basis points yoy to 4.2%.

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