ITC Q3 profit up 22%; stock tanks on disappointing volumes

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ITC Q3 profit up 22%; stock tanks on disappointing volumes

Cigarettes to hotels and FMCG major ITC on Friday beat market expectations with a 22% year-on-year rise in net profit at Rs 1,701 crore. However, the stock tumbled more than 3% as the volumes in the core cigarettes business, which accounts for half of total sales, and growth in other segments like hotels disappointed the street.

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Cigarettes to hotels and FMCG major ITC on Friday beat market expectations with a 22% year-on-year rise in net profit at Rs 1,701 crore. However, the stock tumbled more than 3% as the volumes in the core cigarettes business, which accounts for half of total sales, and growth in other segments like hotels disappointed the street.

ITC's net sales rose 14% from a year ago to Rs 6,195.43 crore in October-December.

Analysts on average had expected ITC's net profit at Rs 1,630 crore on revenue of Rs 6,230 crore.

"At first sight ITC's profit growth looks good. But the profit is ahead (of estimates) only due to other income, which is up nearly Rs 100 crore over last year," Himani Singh, analyst at Elara Securities told moneycontrol.com.

Also the volume growth in the cigarettes segment was a disappointment. Cigarette segment grew 11% in the quarter, but if one was to exclude the price hikes that ITC took during the quarter, then volumes grew only 4%, way below market expectations, Singh said.

In the third quarter, ITC reported a gross revenue of Rs 5,809.70 crore, in the cigarettes business, compared with Rs 5,236.26 crore in the year ago quarter.

Further, the government is expected to raise excise duties on cigarettes sharply in the budget, which will also be a overhang on the stock, she said.

Apart from disappointing cigarette volumes, sluggish growth in other segments was also a let down, analysts said.

ITC's hotels business, for instance, only grew 3%, while agri-business growth was also in single digits, which likely led to investors selling the stock, Kaustubh Pawaskar of Sharekhan told moneycontrol.com.

Gross revenue in ITC's hotels business was at Rs 311.11 crore in Oct-Dec, compared with Rs 303.25 crore a year ago. Agri-business revenue was at Rs 1,139.41 crore, compared with Rs 1,037.50 crore in the year ago quarter. Third quarter revenue from paperboards, paper and packaging segment was up 12% at Rs 1,030.19 crore.

Pawaskar also sighted the budget overhang on the poor performance of the stock.

Despite the near-term concerns, Pawaskar of Sharekhan feels the margin improvement was positive for ITC. The non-cigarette FMCG business growth was also strong at 25% year-on-year.

The price correction could be a good opportunity to buy the stock, he said.

ITC shares closed down 3.8% at Rs 201.30 on NSE on Friday. The stock has significantly outperformed the broader market this year. It is up 10.5% since April 2011, while the broader Nifty is down 13.5%.

Nachiket Kelkar
nachiket.kelkar@network18online.com